the two transformations tale
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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
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