Globalization,Rural Sector Transformation, and Poverty

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Information about Globalization,Rural Sector Transformation, and Poverty

Published on August 17, 2009

Author: jvonbraun

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IAMO Forum 2007
Halle, June 27-29, 2007

International perspectives on poverty and transition in rural areas Globalization, Rural Sector Transformation, and Poverty Joachim von Braun International Food Policy Research Institute IAMO Forum 2007 Halle, June 27-29, 2007

Overview 1. Issues and conceptual framework to assess globalization – poverty links 2. Key drivers of globalization - 1) Markets and trade - 2) Investment & capital flows - 3) Information & innovation and impact on poverty 3. Policy and research implications Joachim von Braun, IFPRI, June 2007

Context of change around the world food and agriculture system 1. Global economy’s fast growth 2. Governance and decentralization 3. Energy price and climate change 4. Health risks and agriculture 5. breakthroughs in science and technology 6. Urban/rural change & migration Not all global change is “globalization” Joachim von Braun, IFPRI, June 2007

Questions 1. what are the effects of globalization of the agri-food system on the poor? 2. Institutional challenges of (erstwhile) transforming economies & globalization: how did globalization impact on poverty in these economies? Joachim von Braun, IFPRI, June 2007

Patterns in TCs: Growth LOW & RUSS MID ETH UZB VIET UKR CHIN FED POL HUN Y Agriculture, value added (annual % growth) 1990 -94 1.4 -0.1 3.3 -8.0 4.6 -7.2 -4.2 -7.5 2.2 2000 -04 3.5 6.0 3.8 6.8 3.4 7.1 2.6 7.4 3.1 GDP growth (annual %) 1990 -94 0.7 -3.5 7.3 -12.3 10.9 -8.8 1.1 -3.2 2.8 2000 -04 5.2 4.8 7.2 8.4 9.2 6.9 3.1 4.4 4.9 Joachim von Braun, IFPRI, June 2007 Source: WDI 2006

Towards urbanization of poverty? Urban and rural share of the poor (%) 1993 2002 18.88 24.67 75.33 81.13 urban share of the poor (%) rural share of the poor (%) Source: Ravallion et al., 2007 Note: Poverty line is set at $1.08/day Joachim von Braun, IFPRI, June 2007

Mixed Evidence: Poverty headcount ratio at $1 and $2 a day (PPP) as % of total population Share of people living on less than $2 a day (% of population) Share of people living on less than $1 a day (% of population) 100 70 90 80 60 70 50 60 40 50 30 40 30 20 20 10 10 0 0 1981 1984 1987 1990 1993 1996 1999 2002 1981 1984 1987 1990 1993 1996 1999 2002 East Asia & Pacific Europe & Central Asia East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle East & North Africa Latin America & Caribbean Middle East & North Africa South Asia Sub-Saharan Africa South Asia Sub-Saharan Africa Source: Based on data from the 2006 WDI database Note: 2002 data are preliminary Joachim von Braun, IFPRI, June 2007

Regional Hunger Trends 45 40.3 40 GH I 1981 35 GH I 1992 32 GH I 1997 30 27.9 27.3 27 26.6 GH I 2003 25.4 25.1 25 22.5 20 15.1 15 12.6 11.9 10.9 11.4 9.4 8.4 8.0 7.9 10 7.5 6.6 6.0 5.6 5 0 Sub-Saharan So uth A sia So utheast N ear East & Latin A merica Eastern A frica A sia N o rth A frica & C aribbean Euro pe & F o rmer So viet Unio n Joachim von Braun, IFPRI, June 2007 Source: Wiesmann, 2006

What is “globalization of agriculture and food systems”? Definition: Global integration— across national borders—of production, processing, marketing, retailing, and consumption of agriculture and food items Joachim von Braun, IFPRI, June 2007 Source: von Braun and Diaz-Bonilla (2007)

Conceptual framework: drivers and examples of changes at different levels of analysis MARKETS INVESTMENT INFORMATION SOCIAL & & POLICY CAPITAL INNOVATION FLOWS Exogenous factors GLOBALIZATION Increased Improved ICTs Aid; LEVEL I access to Expansion human outputs, Innovation & of FDI right to inputs, IPR food labor Competition Technology DOMESTIC policy LEVEL II POLICY policy Pro-poor Market social opening Political & Public R&D actions institutional investments changes RIGHTS HOUSEHOLDS LEVEL III PRICES EMPLOYMENT HOUSEHOLD CONSUMPTION PRODUCTION ENDOWMENTS Joachim von Braun, IFPRI, June 2007 Source: von Braun, 2007

1) Markets and trade Joachim von Braun, IFPRI, June 2007

1. Trade: Stagnation of developing countries’ export shares, more global integration on the import side Agriculture trade in percent of production Export/Production 1960s 1970s 1980s 1990s 2000-02 Latin America and the Caribbean 23.6 24.7 24.5 26.7 31.4 Sub-Saharan Africa a 28.5 23 17.2 15.3 13.2 Asia Developing 5.4 5.7 6.4 6.4 6.4 All Three Regions 12.1 11.8 11.3 11.0 11.6 Import/Production 1960s 1970s 1980s 1990s 2000–02 Latin America and the Caribbean 6.7 8.6 11.2 14 15.7 Sub-Saharan Africa a 8.1 9.4 12.6 12.3 13.5 Asia Developing 7.1 7.7 9.2 8.9 8.8 All Three Regions 7.1 8.0 10.0 10.1 10.5 a Does not include South Africa. Data source: World Bank, WDI 2005 Joachim von Braun, IFPRI, June 2007

Regional trade trends Agriculture trade in percent of total merchandise trade Agr. Exports/Total Merchandize 1980 1990 2000 2003 Transition countries 7.6 5.9 5.3 5.5 Latin America and Caribbean 27.8 26.1 17.4 20.6 Sub-Saharan Africa a 19.8 20.0 15.2 16.9 East and Southeast Asia 13.3 7.7 3.7 3.8 South Asia 33.8 18.6 10.8 10.6 Agr. Imports/Total Merchandise 1980 1990 2000 2003 Transition countries 18.4 14.1 9.3 8.4 Latin America and Caribbean 11.6 12.3 9.0 10.3 Sub-Saharan Africa a 15.4 16.3 17.1 17.9 East and Southeast Asia 14.2 8.0 4.8 4.7 South Asia 13.8 10.3 9.3 9.3 Data source: FAO, 2004; Note: a Does not include South Africa Joachim von Braun, IFPRI, June 2007

But: global increased trade in processed and high-value goods World export value (billions of US$) 100 90 Coarse Grains 80 Fruits & vegetables 70 Meat 60 Milk 50 40 30 20 10 0 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 Data source: based on data from FAOSTAT 2006 Joachim von Braun, IFPRI, June 2007

Poverty effects: Trade • Empirical results mixed • Trade reform impacts at household level e.g. Hertel et al., 2003 (Brazil)  Higher poverty in non-agricultural and wage dependent households  Lower poverty in agriculture-dependent households Winners (majority) and losers; effect of trade liberalization on poor households’ income small Joachim von Braun, IFPRI, June 2007 Source: von Braun (2007)

Estimations of welfare benefits of trade liberalization: studies 1999 - 2006 Source: Bouët, IFPRI, 2006 Joachim von Braun, IFPRI, June 2007

2) Investment & capital flows Joachim von Braun, IFPRI, June 2007

Drivers: (2) Investment and capital flows 1990 Industrial countries Developing countries FDI in food and Agriculture 100 80 as % of world total FDI 60 1990 and 2004 40 20 0 Agriculture, hunting, Food, beverages and 2004 forestry and fishing tobacco Industrial countries Developing countries Transition countries 100 80 60 40 20 0 Agriculture, hunting, Food, beverages and forestry and fishing tobacco Source: based on data from UNCTAD, 2004 Joachim von Braun, IFPRI, June 2007

Poverty effects: FDI FDI Labor Intensive Capital / Knowledge Sector Intensive Sector Unskilled labor Skilled labor Reduced Increased Poverty Poverty • Other: Economic growth through forward and backward linkages + knowledge spillovers; • government revenue from corporate taxes for pro-poor investments Vietnam: FDI in rural areas, direct impact on poverty insignificant (Nguyen, 2003) Joachim von Braun, IFPRI, June 2007 Source: von Braun (2007)

With a blending target of 15 percent of transport fuel… 3) Information & innovation Joachim von Braun, IFPRI, June 2007

Drivers: ICT and information flows  Ongoing technological advances  Privatization of national telecom. monopolies in many developing countries in 1980s and 1990s Joachim von Braun, IFPRI, June 2007

Drivers: ICT Revolution 500 Fixed line and mobile phone subscribers 400 (Per 1,000 people) 300 200 100 0 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 150 Internet users World (Per 1,000 people) 100 Low income Middle income 50 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Data source: World Bank, 2006 Joachim von Braun, IFPRI, June 2007

Poverty effects: ICT (macro-level results) • ICTs reduce transaction costs + open markets + additional network externalities • Tele-density is positively associated with growth: - 10 more mobiles per 100 people increase GDP p.c. by 0.6% (Wavermann et. al., 2004) - Minimum threshold: around 15% to get strongest growth effects, actual is only 6% Torero and von Braun, 2006 Joachim von Braun, IFPRI, June 2007

Regional integration: trading Systems in Comesa Warehouse Receipt Commodity Exchange IFPRI EAGC • Rules of Trade Uganda Commodity •Contracts Exchange KACE Warehouse Receipt EU Commodity Exchanges • ACE • MACE Warehouse Receipt • ZACA SAFEX

Poverty effects: ICT (micro-level results) Consequences of limited rural access • Rural households willing to pay more than prevailing tariff rates per local call: Peru: US$ 0.25 to 0.35 Bangladesh: US$ 0.10 to 0.26 Source: Torero and von Braun, 2006 Joachim von Braun, IFPRI, June 2007

Science and technology • Rapid expansion of R&D spending: - China: 2007 = No. 2 (136 Bill.$; 926.000 Scientists) ; USA = 330 Bill$; EU = 230 Bill$) - India: fast growth - Africa’s new policy (AU Summit) • Rural / Agriculture science and R&D? 9 of 17 innovations scoring highest in the 2006 RAND assessment relate to rural & agric. • China, India, Brazil go global with their innovation systems in agriculture (in different ways; research, higher education) Joachim von Braun, IFPRI, June 2007

Global Public Agricultural R&D: 1981 and 2000 1981 2000 $15.2 billion* $23.0 billion* 100% Middle East-North Africa Latin America-Caribbean 80% Other Asia-Pacific 60% India China 40% Sub-Saharan Africa Developed 20% 0% * in 2000 international prices Joachim von Braun, IFPRI, June 2007

A changing environment for innovation • Introduction of patent rights for agricultural inventions under TRIPS agreement • Bio-safety regimes and reduced exchange (e.g. genetic resources) - Technology spillover pathways to developing countries for productivity enhancement reduced - Less global public goods research when we need more of it (climate, etc.) Joachim von Braun, IFPRI, June 2007

3. Policy implications for pro-poor globalization • Global and national market & trade policy • Facilitation of capital and aid flows • Development in rural areas, where the poor are (ICT, and infrastructure) • Enhancing the global innovation systems • Rural social protection policy Joachim von Braun, IFPRI, June 2007

Toward global social policies • Global social policy ? Promising but not comprehensive efforts: - Human right to food - Global emergency aid - Disaster response - Child labor in agriculture - Global health policy initiatives • Innovations in social policy [e.g. conditional cash transfers] • G8 call for social protection Source: von Braun, 2007 Joachim von Braun, IFPRI, June 2007

The world food system globalizes: global value added and competitiveness ? Agricultural Food Consumers input processors Food industry Farms and traders retailers top 10: $37 bln Agricultural top 10: $363 bln top 10:$777bln value added: • Syngenta $1,315 bln • Nestle • Wal-Mart • Bayer • Cargill • Carrefour • BASF 450 million • Unilever • Royal Ahold $4,000 billion • Monsanto >100 ha: 0.5% • Metro AG • ADM • DuPont • Kraft Foods • Tesco < 2 ha: 85% Source: von Braun, 2005 Joachim von Braun, IFPRI, June 2007

What future for the small farms? Number of farms Farm Size (ha) % of all farms (millions) <2 85 387 2 - 10 12 54 10 - 100 2.7 12 > 100 0.5 2 Total 100 455 The numbers still increase in Africa and South Asia Source: von Braun, 2003 Joachim von Braun, IFPRI, June 2007

Where will be the jobs? sectoral & spatial labor flows in global employment …2020 (Bill.) Farm Services & Services & Total Industry Industry- Rural areas Urban areas 2005 0.9 0.6 1.5 3.0 2020 0.6 1.0 1.9 3.5 Change - 0.3 +0.4 +0.4 +0.5 2005- 2020 Estimates based on ILO economically active populations projections and own estimates of sector shares, J. von Braun, 2005 Joachim von Braun, IFPRI, June 2007

Small farms and small businesses can participate +25 jobs From a 2 ha. rice farm to fruit processing firm in Uttar Pradesh: training (her), banking was key; and the road Joachim von Braun, IFPRI, June 2007

Questions & preliminary answers 1. what are the effects of globalization of the agri- food system on the poor? • Generally favorable but mixed; • exclusion of the poorest in rural areas 2. (erstwhile) transforming economies + globalization: how did globalization impact on poverty in these economies? • Strong evidence of poverty reducing growth • domestic policies more important than global context And all these remain research issues Joachim von Braun, IFPRI, June 2007

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