ISSN 1819-4591 POLICY ASSISTANCE SERIES 7 Bureau régional pour l’Afrique Rethinking public policy in agriculture Lessons from distant and recent history (cid:51)(cid:70)(cid:85)(cid:73)(cid:74)(cid:79)(cid:76)(cid:74)(cid:79)(cid:72)(cid:1)(cid:81)(cid:86)(cid:67)(cid:77)(cid:74)(cid:68)(cid:1)(cid:81)(cid:80)(cid:77)(cid:74)(cid:68)(cid:90)(cid:1)(cid:74)(cid:79)(cid:1)(cid:66)(cid:72)(cid:83)(cid:74)(cid:68)(cid:86)(cid:77)(cid:85)(cid:86)(cid:83)(cid:70) (cid:45)(cid:70)(cid:84)(cid:84)(cid:80)(cid:79)(cid:84)(cid:1)(cid:71)(cid:83)(cid:80)(cid:78)(cid:1)(cid:69)(cid:74)(cid:84)(cid:85)(cid:66)(cid:79)(cid:85)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:83)(cid:70)(cid:68)(cid:70)(cid:79)(cid:85)(cid:1)(cid:73)(cid:74)(cid:84)(cid:85)(cid:80)(cid:83)(cid:90) (cid:36)(cid:80)(cid:79)(cid:84)(cid:80)(cid:77)(cid:74)(cid:69)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:67)(cid:90) (cid:41)(cid:66)(cid:14)(cid:43)(cid:80)(cid:80)(cid:79)(cid:1)(cid:36)(cid:73)(cid:66)(cid:79)(cid:72)(cid:1) 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Lessons from distant and recent history iii FOREWORD Many of the agricultural development policies and institutional frameworks adopted by developing countries during most of the last 20 years followed the so-called “Washington Consensus”, referred to in this report as the new conventional wisdom (NCW). This approach emphasized the role of market forces in the economy as the main mechanism for resource allocation and viewed public-sector intervention as having had price-distorting effects that bred inefficiency and stifled growth. The NCW policies, which were mainly prescribed by the World Bank and the International Monetary Fund (IMF), supported stabilization policies and Structural Adjustment Programmes (SAP) and advocated for radical reforms in agriculture that were centred on privatizing production and delivery of services and restricting governments to legislative and regulatory roles and delivering core public-sector goods and services. A key feature of these policies was that they were often prescribed and replicated across the board without due consideration to the realities of individual countries. However, compared with the policies of the immediate post-colonial period (roughly from the 1950s through the mid-1970s), the NCW had generally performed poorly, resulting in slowed economic growth, rising inequality and increased poverty. In contrast, some developing countries in Asia and Latin America that followed more calibrated and sequential approaches to economic liberalization have had better results. This has raised questions about the appropriateness of NCW policies and has reignited debate on the relative roles of the public and private sectors, especially in the context of developing countries. In this report, which is supported by case studies from ten countries, FAO tries to make a case for the complimentarity between targeted public-sector interventions and private sector roles. The report provides a wide range of examples of good and bad policy choices and highlights three important lessons. First, in all countries that are now developed, governments played an important role in supporting agriculture at the early stages of economic development by participating in price stabilization and provision of inputs such as seeds and fertilizer. This support was maintained for a long time and it is still maintained in some cases. The same strategy was successfully employed by countries such as Chile and India more recently. Second, it is evident that a “one-size-fits-all” policy in agriculture often has had disastrous results. The wide array and mix of policy options adopted by countries clearly underlines the importance of taking a pragmatic approach rather than getting locked into pro-state or pro-private-sector ideological viewpoints. Finally, agriculture thrives best when there is continuity in policy and public-sector support. In the early stages of economic development, state subventions are often justifiable to ensure price stability, food availability and affordability and, ultimately, political stability which are required for long-term investment and development. FAO hopes that this paper will help policy practitioners to guide the formulation of agricultural development policies, taking into account the lessons highlighted, especially in addressing the needs of the poor. Richard China Director Policy Assistance and Resource Mobilization Division iv Rethinking public policy in agriculture: Lessons from distant and recent history EXECUTIVE SUMMARY This report on a study by the Food and Agriculture Organization of the United Nations (FAO) on “Applying Historical Precedent to New Conventional Wisdom on Public Sector Roles in Agriculture and Rural Development”, synthesizes the reviews of the history of agricultural policy in ten of today’s developed countries (Canada, Denmark, France, Germany, Japan, Republic of Korea, the Netherlands, Norway, Sweden and the United States of America) and in ten developing and transition economies (Chile, Egypt, Ethiopia, Ghana, Hungary, India, Mexico, Ukraine, Viet Nam and Zambia). It draws lessons for today’s developing and transition countries that go beyond the so-called Washington Consensus, or what is called the new conventional wisdom (NCW) in this report. The report provides a review of the evolution of agricultural policy in the post-World War II period. In addition to the brief historical review of the rise of neo-liberal economic thinking, the report discusses two key policy proposals behind the neo-liberal view on the role of public policy in agriculture – the elimination of distortions (ostensibly caused by government intervention) and the abandonment of national food security as a policy goal. Concerning the first proposal, the study concludes that certain distortions might be beneficial for various reasons (including the need to create short-term distortions in order to improve long-term productivity and to correct market failures). With regard to the second proposal, it is argued that national food security is a totally defensible economic policy goal when a country is at a low level of economic development (and is therefore exposed to greater risks of long-term food shortages due to low productivity) and/or when their staple foods have limited tradability. The third section of the report provides justifications for drawing lessons from history by showing how agriculture played very similar roles in the currently rich countries in the late nineteenth and early twentieth centuries. In the late nineteenth century, the conditions for agriculture in the currently rich countries were similar to those found in today’s poorest developing countries. Even after a few decades of (what then was) rapid industrial development, their conditions in the early twentieth century were similar to what we find in some of the poor developing economies today. From the 1930s to the 1950s, the conditions in the then poorer of today’s rich countries, such as Japan and Sweden, were still in the range of Pakistan and Guatemala today. The report argues that the historical comparison is not as misplaced as it might at first seem. This not withstanding, a discussion of the difficulties involved in drawing lessons from history is also presented. The main section of the report documents in great detail a large number of agricultural policies that have been used in the past – not just in today’s developing and transition countries in the last 60 years, but also in today’s rich countries in the late nineteenth and early twentieth centuries. The section is divided into two main subsections – inputs policy and outputs policy. In the inputs policy section, the report discusses land policy (land tenure reform and land quality improvement), knowledge policy (research, extension, education and information), credit policy (specialized banks and agricultural credit cooperatives) and physical inputs policy (irrigation, transport, electricity and divisible inputs such as fertilizers, seeds and farm machinery). In the outputs policy section, the report covers the measures intended to increase farm income stability (price stabilization measures, insurance and trade protection) and the measures intended to improve agricultural marketing and processing. Rethinking public policy in agriculture: Lessons from distant and recent history v The report concludes with the following lessons: • In thinking about how to improve agricultural policy in developing and transition economies, there is a lot to be learned from history, especially from the history of the rich countries. There is a surprisingly high degree of similarity in the role that agriculture has played in these countries and therefore in the relevant policies they have used. • History shows that many successful policy interventions go well beyond (or sometimes even against) the scope recommended by the NCW. Therefore, the contents of the agricultural policy toolbox for today’s developing countries will be significantly enriched if history is taken more seriously. History frees our “policy imagination” in the sense that it shows us that the range of policies and institutions that have produced positive outcomes for agricultural development has been much wider than any particular ideological position – be it the pre-1980s statist one or the pro-market NCW – would admit. • The exact institutional forms that have successfully (or unsuccessfully, for that matter) delivered critical needs of the agricultural sector vary enormously across time and space. There were successes and failures with all forms of delivery in all sorts of countries – public provision, private provision, private delivery subsidized by the state, public-private partnerships, cooperatives, state-cooperative partnerships and so on. All these examples suggest the importance of a pragmatic approach, not bound by pro-state or pro-private-sector ideologies. Indeed, one important common characteristic of success stories is their willingness to pick solutions that do not neatly fit into ideological boxes. • It is important for countries to actively import and adapt policy and institutional innovations and to create ones of their own. Throughout distant and more recent history, successful countries have learned from others’ success stories and have experimented with new policies and institutions – there were international transfers of programmes and approaches in agricultural research, extension services, cooperatives, rural credit and agricultural insurance. A summarized version of seven of the ten country case studies are included as an annex to highlight the varied typology of agricultural development policies adopted by countries in different stages of economic development. These include a good performer (Chile), two mixed performers (India and Mexico), two suboptimal performers (Ethiopia and Zambia) and two transition economies (Hungary and Ukraine). vi Rethinking public policy in agriculture: Lessons from distant and recent history ACKNOWLEDGEMENT The author wishes to thank Neela Gangadharan, Mafa Chipeta and Carlos Santana of FAO for their guidance and help in formulating the project and developing it. Acknowledgement is also due to Dirk Bezemer, Arabella Fraser, Duncan Green, Claire Melamed, and James Putzel for their helpful comments on earlier drafts of the report. Deborah Johnston, Niek Koning, and Carlos Oya provided detailed and enlightening comments, not all of which could be incorporated into the final version of the report. The author also benefited greatly from the comments made by the participants at the project workshop held in Addis Ababa, Ethiopia, on 23 October 2008. Rebecca Buchholz provided excellent research assistance at an early stage of the project. The able research assistance of Luba Fakhrutdinova and Francesca Reinhardt is also greatly appreciated. Finally, thanks go to Chimimba D. Phiri for guiding the latter part of the work, Messrs Vijay Vyas for preparing summaries of the seven country case studies in the annex, Brett Shapiro for his editorial work, Weldeghaber Kidane for finalizing the document for publication, and Ana Maria Galván for formatting it. Rethinking public policy in agriculture: Lessons from distant and recent history vii TABLE OF CONTENTS Foreword.........................................................................................................................................iii Executive Summary........................................................................................................................iv Acknowledgement..........................................................................................................................vi List of acronyms.............................................................................................................................ix 1 Introduction............................................................................................................................1 2 The Evolution of Agricultural Policy in the Post-World War II Period..................................3 2.1 Eliminating “Distortions”..............................................................................................5 2.2 Abandoning the “Misguided Concern for National Food Self-sufficiency”.................6 3 Lessons from History.............................................................................................................8 4 Policy Lessons from Distant and Recent History.................................................................13 4.1 Inputs Policy................................................................................................................13 4.1.1 Land policy: land tenure reform and land quality improvement......................13 4.1.2 Knowledge: research, extension, education and information...........................19 4.1.3 Credit................................................................................................................29 4.1.4 Physical inputs..................................................................................................35 4.2 Outputs Policy.............................................................................................................41 4.2.1 Measures to increase farm income stability.....................................................41 4.2.2 Measures to improve marketing and processing..............................................48 5 Conclusions..........................................................................................................................53 References......................................................................................................................................56 ANNEX 1: PROFILE OF CHILE.................................................................................................61 1. Setting................................................................................................................................61 2. Macro Policies and their Impact........................................................................................61 3. Agricultural Policies..........................................................................................................62 4. Organizational and Programmatic Interventions...............................................................64 5. Lessons Learned................................................................................................................65 ANNEX 2: PROFILE OF ETHIOPIA...........................................................................................67 1. Key Features of the Country..............................................................................................67 2. Policies and Strategies under the Imperial Regime (1930-1974)......................................67 3. Policies and Strategies under the Military Government (1974-1991)...............................68 4. Policies and Strategies in the Post-reform Period (1991 to present).................................68 5. Major Impacts....................................................................................................................70 6. Lessons Learned................................................................................................................70 ANNEX 3: PROFILE OF HUNGARY.........................................................................................71 1. Soviet-style Agricultural Policies (1945-1967).................................................................71 2. The New Economic Mechanism (1968-1989)..................................................................71 3. Transition from a Centrally Planned to a Market Economy (1990-2004).........................72 4. EU Membership Period (2004-2005)................................................................................74 5. Conclusions.......................................................................................................................74 6. Lessons Learned................................................................................................................75 ANNEX 4: PROFILE OF INDIA..................................................................................................76 1. Main Features of India’s Agricultural Sectors...................................................................76 2. Period Preceding the Green Revolution............................................................................76 viii Rethinking public policy in agriculture: Lessons from distant and recent history 3. The Green Revolution and After.......................................................................................77 4. Economic Reforms Period.................................................................................................78 5. Reforms in Agriculture......................................................................................................78 6. Current Phase of Economic Reforms................................................................................79 7. Lessons Learned................................................................................................................80 ANNEX 5: PROFILE OF MEXICO.............................................................................................81 1. Setting................................................................................................................................81 2. The Stabilization Phase (1958-1973)................................................................................81 3. Period of Rapid Foreign Indebtedness (1973-1982).........................................................82 4. Foreign Exchange Crisis (1982-1994)...............................................................................82 5. Agriculture and Rural Development in Recent Years (1974-2006)...................................82 6. Conclusions and Lessons Learned.....................................................................................84 ANNEX 6: PROFILE OF UKRAINE...........................................................................................86 1. Soviet Period.....................................................................................................................86 2. First Phase of Agricultural Reforms (1991-1999).............................................................87 3. Second Phase of Agricultural Reforms (2000-2007).........................................................87 4. Agricultural Performance during the Two Reform Phases................................................88 5. Conclusions.......................................................................................................................90 6. Lessons Learned................................................................................................................90 ANNEX 7: PROFILE OF ZAMBIA.............................................................................................92 1. Agriculture in Zambia.......................................................................................................92 2. Evolution of Development Policies and Institutions.........................................................92 3. Evolution of Agricultural Policies.....................................................................................94 4. Causes and Consequences of Low Agricultural Performance...........................................94 5. The Role of the Public and Private Sectors in Agriculture................................................95 6. The Role of Donors...........................................................................................................96 7. Lessons Learned................................................................................................................96 List of Tables Table 1: Share of agriculture in total employment............................................................. 10 Table 2: Share of agriculture in total output .......................................................................11 List of boxes Box 1: Distribution of public land in the United States ...................................................14 Box 2: Chilean land reform ..............................................................................................15 Box 3: East Asian land reform...........................................................................................17 Box 4: Land degradation in Ethiopia............................................................................... 18 Box 5: Agricultural research in North America ...............................................................21 Box 6: Agricultural research in India ...............................................................................23 Box 7: Agricultural research and extension in Japan .......................................................25 Box 8: Extension services for agricultural export sectors in Ghana................................ 26 Box 9: The rural credit system in the United States......................................................... 31 Box 10: Zambia’s struggle to develop the rural credit system........................................... 32 Box 11: A brief history of cooperatives .............................................................................34 Box 12: The Chilean price bands system ...........................................................................44 Box 13: Contract farming in Zambia................................................................................. 51 Rethinking public policy in agriculture: Lessons from distant and recent history ix LIST OF ACRONYMS AES Agricultural Experiment Station AgSSIP Agricultural Services Subsector Investment Programme ASIP Agricultural Sector Investment Programme CAP Common Agricultural Programme CIMMYT International Maize and Wheat Improvement Centre (Centro Internacional de Mejoramiento de Maíz y Trigo) COPAGRO Grain Producers Confederation (Confederación de Productores de Granos) CORA Corporación de la Reforma Agraria COTRISA Comercializadora de Trigo SA ERP Economic Reform Programme FAO Food and Agriculture Organization of the United Nations FCIC Federal Crop Insurance Corporation GATT General Agreement on Tariffs and Trade GDP Gross domestic product HEII Horticulture Exports Industry Initiative HYV High-yielding varieties IMF International Monetary Fund INIA Instituto Nacional de Investigaciones Agropecuarias (National Institute of Agricultural Research). INDAP Instituto Nacional de Desarrollo Agropecuario (National Institute of Agricultural Development) IRRI International Rice Research Institute MFI Microfinance institution MSP Minimum support price NAFTA North American Free Trade Agreement NAMB National Agricultural Marketing Board NCW New conventional wisdom NERP New Economic Reforms Programme NGO Non-governmental organization OECD Organisation for Economic Co-operation and Development PA Peasant Associations R&D Research and development SAPs Structural Adjustment Programmes SLM Sustainable land management USDA United States Department of Agriculture WDR World Development Report WTO World Trade Organization