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An Outlook on Asia's Agricultural and Rural Transformation

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An Outlook on Asia's Agricultural and Rural Transformation AN OUTLOOK ON ASIA’S AGRICULTURAL AND RURAL TRANSFORMATION Prospects and options for making it an inclusive and sustainable one ASIA AND THE PACIFIC DIVISION International Fund for Agricultura l Development Via Paolo di Dono, 44 - 00142 Rome, Italy Tel: +39 06 54591 - Fax: +39 06 5043463 Email: [email protected] www.ifad.org facebook. com/ifad instagram. com/ifadnews linkedin.com/company/ifad twitter.com/ifad youtube.com/user/ifadTV AN OUTLOOK ON ASIA’S AGRICULTURAL AND RURAL TRANSFORMATION Prospects and options for making it an inclusive and sustainable one ASIA AND THE PACIFIC DIVISION Authors: Fabrizio Bresciani, Thomas Chalmers, Dilva Terzano, Raghav Gaiha, Ganesh Thapa, and Nidhi Kaicker Contributors: Roehl Briones, Katsushi S. Imai, Monica Romano, Mary Taylor Reviewers: Doris Capistrano, Roshan Cooke, Kim Khoi Dang, Costanza Di Nucci, Tawfiq El Zabri, Sisira Jayasuriya, Avinash Kishore, Sattar Mandal, Tim Martyn, Sakphouseth Meng, Meera Mishra, Tung Nguyen Thanh, Qaim Shah, Aissa Toure, Marie Van Der Donckt © 2019 by the International Fund for Agricultural Development (IFAD) The opinions expressed in this publication are those of the authors and do not necessarily represent those of the International Fund for Agricultural Development (IFAD). The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of IFAD concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. The designations ‘developed’ and ‘developing’ countries are intended for statistical convenience and do not necessarily express a judgement about the stage reached by a particular country or area in the development process. All rights reserved ISBN 978-92-9072-879-5 Printed June 2019 CONTENTS EXECUTIVE SUMMARY 6 LIGHTS AND SHADOWS OF ASIA’S DEVELOPMENT: INCLUSIVE BUT UNSUSTAINABLE 11 Setting the stage: achievements and challenges in economic and human development across Asia 11 Natural resource degradation, climate change 26 Annex: a note on regional and income-based classifications 45 AGRICULTURE, STRUCTURAL TRANSFORMATION AND THE GROWING IMPORTANCE OF THE AGRIFOOD SECTOR 47 What do growth and structural transformation tell us about the rural economy? 47 The growing importance of the agrifood sector 53 The rural non-farm economy and the agrifood sector 75 ASIA’S AGRICULTURAL TRANSFORMATION: UNDERMINING OR FOSTERING SUSTAINABLE DEVELOPMENT? 79 Agriculture’s contribution to the Asia’s natural resource and ecosystem service degradation 79 From agriculture’s to agribusiness’s role in poverty and malnutrition reduction 89 What role for agriculture and smallholders in the realization of Agenda 2030? 93 PROSPECTS FOR SUSTAINING THE TRANSFORMATION OF ASIA’S AGRICULTURE AND RURAL ECONOMY 97 Prospects for the rural non-farm economy and employment opportunities 98 Prospects for public and private investment in rural areas 100 Vulnerability of Asia’s agriculture to climate change 106 Prospects of Asia’s institutional and policy context in agriculture 111 Conclusions 115 ASIA’S PATHWAYS TOWARDS AN INCLUSIVE AND SUSTAINABLE AGRICULTURE AND RURAL TRANSFORMATION 117 Shifts in development strategies shaping Asia’s agriculture and rural transformation paradigm 117 Asia’s differentiated stages in the transformation of agriculture and the rural economy 122 Strategic thrusts for an Asian smallholder-centred agricultural and rural transformation agenda 125 Conclusions 146 REFERENCES 147 5 EXECUTIVE SUMMARY If the success of Asian countries in transforming their rural economy is measured by the extent to which poverty has declined over the past 20 years, there is no question that their transformation can be regarded as one of the major achievements in human history. The decline in extreme poverty and hunger has been outstanding and today Asia is making steady progress towards eradicating both by 2030. Contrasting with these bright lights, though, are shadows dimming Asia’s development performance. Environmental quality has worsened and continues to do so at a rapid pace. The degradation of natural resources has reached worrying levels in most parts of Asia. Vulnerability to climate change is increasing as concentrations of CO2 in the atmosphere increase. Inequality is on the rise, both within rural and urban areas and between them. The gains made in poverty reduction could easily be reversed, as mobility above the poverty line is constrained for too many households and exposure to economic shocks and unstable food markets persists. Malnutrition is overtaking undernourishment in the social development agenda, as diets provide insufficient nutrients for large swathes of the urban and rural population or lead to excessive food consumption patterns. New problems are overtaking the older ones and Asia is now entering a critical part of its history. Agenda 2030 and the Sustainable Development Goals are challenging propositions for today’s policymakers in Asia. Against this background, the question is: what can agricultural and rural policies hope to reasonably achieve to tackle the challenges faced by Asian countries today? Many of the countries in this region remain majority-rural, but their agricultural sector weighs much less in total GDP than it did just 10 years ago. The gap in labour productivity between agriculture and the rest of the economy is large and growing in most countries. Agriculture has undergone its own structural transformation with increasing shares of high-value crops in response to changing diets and export opportunities. Its capital intensity has increased at a rapid pace and so has the intensity with which it uses agrochemicals and water resources. Rural households are unquestionably deriving less than half of their income from farming and for the poorest households that percentage is even less; in fact, non-farm employment has grown across all Asia, a welcome development, particularly in South Asia, in the face of the reduced capacity of industry and services to offer jobs to the growing numbers of young people. These considerations, though, need to be balanced against the appreciation of agriculture’s linkages with the rest of the economy. When due consideration is given to the numerous forward and backward linkages shaping today’s agrifood systems in Asia, we see that agriculture is a core component of a broader agrifood system on the performance of which the employment and income of a large part of the rural poor depend. For that agrifood system to grow over the long term and generate employment opportunities, though, agriculture’s competitiveness is a key precondition. So is agriculture successfully delivering on this specific role? 6 Agriculture remains a significant driver of poverty reduction in Asia, but the way in which its growth leads to less poverty is now changing rapidly. Reductions in poverty and malnutrition are increasingly associated with agriculture’s commercialization and the development of industries in the downstream rather than with the more traditional channel represented by farm income. In other words, agribusiness growth matters more than agricultural growth per se in today’s Asia. While we are reassured that agriculture, as part of a broader agribusiness sector, retains a central role in rural development and poverty reduction, there needs to be a realization that its current mode of operation is contributing in an important way to the degradation of natural resources and the environment generally observed across the region. Unless a shift from the traditional Green Revolution paradigm to a more sustainable one is undertaken, there is a risk that, compounded by climate change, the degradation of the natural resource base will undermine the sector’s prospects. Herein lies a major challenge for agriculture’s role in delivering on Agenda 2030 given the competitiveness-poverty-sustainability nexus. Furthermore, we see that this nexus is all the more challenging given the prominence of smallholder agriculture in Asia. Provided that smallholder agriculture is encouraged through the right mix of policies and investments, its contribution to the realization of Agenda 2030 will be undeniable. This report finds ground for a temperate optimism regarding the future role of smallholder agriculture in helping Asian countries delivering on Agenda 2030. Growth rates of the region’s major economies remain buoyant. Notwithstanding the risks associated with a new global crisis or originating from the instability of financial markets, economic growth is expected to remain strong in the decade to come. This will have positive influences on the rural economy, including the rural non-farm sector, ensuring that it benefits from public investments in rural-urban connectivity made possible by healthier public finances. Asian rural financial markets are now better integrated with domestic financial markets, and through them with international financial markets, compared with only 10 years ago. Public policies have shifted from taxing to supporting agriculture so that incentives for agricultural producers are now relatively more favourable than those faced by other sectors of the economy. However, the report finds reason to moderate its optimism when it comes to climate change, perhaps today’s most significant challenge for policymakers regarding the agricultural and rural transformation. Furthermore, Asian policymakers will increasingly be brought to face the difficulty of protecting
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