Telling The Two Transformations Tale: Emerging Challenges to Poverty

Reduction

Kostas StamoulisPrabhu Pingali

Ellen McCullough Agricultural and Development Economics Division (ESA)

FAO, Rome

Objectives and Structure

• Poverty Focus• Describe fundamental changes in food systems • Identify the forces which drive those changes and

the role of trade• Underline the importance of heterogeneity• What are emerging challenges for poverty

reduction ?

Transformation and Food System Changes

• Transformation process: The process in which the share of agriculture declines in favour of other sectors

• Changes in Food Systems : the changes in the organization of food markets at all levels as a result of changes in demand patterns and technology

Agricultural Transformation: a global phenomenon

Low Income

Lower Middle Income

Upper Middle Income

High Income

0

10

20

30

40

50

60

70

80

-1,000 4,000 9,000 14,000 19,000 24,000 29,000 34,000 39,000 44,000 49,000 54,000

GDP (US$ per Capita)

Share of Agriculture

(% GDP)

High Human DevelopmentMedium Human DevelopmentLow Human Development

Source : Pingali ( 2006)

Transformation Process0

.2.4

.6.8

Agr

icul

ture

/GD

P

4 6 8 10 12log(1995 US$)

agriculture/GDP agriculture/GDP*lacfitted value whole sample fitted value lac

Source: WDI 2003

(1961-2002)Agricultural Share on GDP and Income per capita

Source : Bravo, Ortega and Lederman (2004)

The Changing Food System

Inputs Primary production

Processing and packaging

Distribution and retail Consumption

Individuals Enterprises

Governed by Institutions: Rules and regulationsMarkets (Contracts)

Transport Services

Food Systems Changes: Driving Forces

• Rising incomes– Diet diversification out of staples (Engels Law, Bennett Law)

• Demographic Shifts– Urbanization– Rising food prepaper’s opportunity cost

• Technology– Transportation and food handling– Chain management (logistics )

• “Globalization”– Foreign direct investment (in retail and production)– Trade liberalization

◄

The “other face “ of globalization

FAO: State of Food Insecurity, 2004

The Emergence of Large Retail

◄

New Rules for a New Game

• Centralization of procurement– Squeezing of supplier lists

• Shift from spot markets to specialized wholesalers to guarantee q and q– New intermediaries and logistics

• Contract farming– Preference for limited transactions

• Rise of private standards– Quality, safety not common for internal trade

The contribution of International trade

• Trade links and interactions have not been explored in a systematic way

• Trade has not been the primary mover – Stable shares of imports in total consumption of

dev.ing countries – Small relative to sales of processed by subsidiaries– Meat, F and V trade shares in total consumption

unchanged in a 20 years • The Reardon “U “ hypothesis of the role of trade

Relative Importance of Trade, 1960-2005(Share of imports and exports in domestic food supply)

1960 1970 1980 1990 2000 1960 1970 1980 1990 2000

World

Africa

Asia

SouthAmerica

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1960 1970 1980 1990 2000

Cereals Fruits Vegetables

source: FAOSTAT 2006

The “ U “ hypothesis Share of Imports of processed products originating in the region

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Years

Shar

e Argentina

Brazil

Transforming Food Systems : Challenges for Rural Poverty

Reduction

• Rapid spread of the “chain” model expected in future

• Competition for market share is at the chain level ( margins)

• Standards, quality and stability not just for exports

• More generalized impacts than on small farmers

Food System Transformation: Country-level heterogeneity

Traditional Agriculture

Modernizing Agriculture

Industrialized Agriculture

Share of Ag in GDP >30% 10%-30% <10%

Share of Ag labor in total >50% 15-50% <15%

Market Orientation Subsistence National International

Output Mix Food Staples Food Staples

+ high valueHighly

differentiated

Scale Economies Not Important May be Important Important

Transformation Process: Country Classifications

0

20

40

60

80

1000 10 20 30 40 50 60 70

Share of Agriculture in GDP (%)

Rural Population (% of total)

Low IncomeLower-Middle IncomeUpper-Middle IncomeHigh Income

URBANIZED Economies

CAT 2

CAT 1

Agricultural transformation: Heterogeneity across production systems

• Increasing scales of production• Reversal of the farm size productivity

relationship• Declining competitiveness of marginal

lands• Increasing risk of biodiversity loss and

environmental sustainability

Rural Non Farm Income Shares

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

RNF

Farm

Rural Income Generating Activities ( cont)

Figure 6: RIGA income shares

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Crops Livestock Ag. wage RNF wage RNF self-employment Transfers Other

Conclusions

• Rapid transformations change the balance of concerns between domestic factors and international trade.

• Heterogeneity of impacts and focus• Commodity focus: narrow• Agriculture focus : narrow • Up-stream and downstream activities

Conclusions ( cont)

• Under-researched aspects, hard to capture in global models

• Several policy “prescriptions” overlap• Balance of awareness much lower.. until

today.Thank you

• http://www.fao.org/es/esa/ejade/vol_1/vol_1_2/cover_en.htm

Food System Transformation: Household Level Heterogeneity

• Access to assets, credit• Management skills (source of rents)• Access to services, such as appropriate

production and marketing extension and technology

• Institutions• Pluriactivity and Diversification