Future Agricultures Working Papers

Working Paper Reforming agricultural policy: lessons from four countries Lídia Cabral, Colin Poulton, Steve Wiggins & Linxiu Zhang July 2006 Comparative Study of Agricultural Reforms The Future Agricultures Consortium aims to encourage critical debate and policy dialogue on the future of agriculture in Africa. The consortium is a partnership between research-based organisations in Africa and the UK, with work currently focusing on Ethiopia, Kenya and Malawi. Future Agricultures is funded by DFID and comprises the Institute of Development Studies, Imperial College London and Overseas Development Institute ⎯ together with an emerging network of partners in the three initial focus countries. Future Agricultures Institute of Development Studies, Brighton, BN1 9RE Tel: +44 (0)1273 877418 Email: [email protected] Web Page: www.future-agricultures.org Acknowledgements Thanks go to Martin Greeley, Robin Johnson, Ralph Lattimore and Alberto Valdés for comments on drafts of country chapters and other helpful suggestions. What follows does not necessarily reflect their views: the authors are solely responsible for any errors and omissions in this paper. Abbreviations BADC Bangladesh Agricultural Development Corporation BNP Bangladesh Nationalist Party FF Federated Farmers of New Zealand GDP Gross Domestic Product IFDC International Fertilizer Development Center ISI Import Substituting Industrialisation MAF Ministry of Agriculture and Fisheries, New Zealand NZ$ New Zealand dollar PSE Producer Subsidy Equivalent VAT Value Added Tax 2 Comparative Study of Agricultural Reforms Contents SUMMARY 5 The country cases 6 Conclusions 7 Lessons for Africa and other would-be reformers 8 1. INTRODUCTION 10 2. BANGLADESH 11 Introduction 11 Context of reform 11 The reforms undertaken in agriculture 11 The process of reform 14 Outcomes of reform 16 Lessons from Bangladesh 18 3. CHILE 19 Introduction 19 Context of reform 19 Policy formation 22 Proposed content of the reforms 22 Proponents and arguments 22 Debates on reforms 23 Policy implementation 24 Administratively and agencies 24 Obstacles, responses and revisions 24 Policy outcomes 25 Agricultural prices 26 Agricultural land prices 26 Technical change and productivity 26 Agricultural growth 26 Agricultural balance of trade 26 Agricultural labour, employment and wages 26 Income distribution and rural poverty 28 Lessons from Chile 29 4. CHINA 30 Background to agricultural and rural reforms in China 30 3 Comparative Study of Agricultural Reforms Basic features of agricultural and rural reforms 30 The process of reform implementation 31 Outcomes of reforms 32 Overall rise in agricultural productivity 32 Significant increase in rural-urban migration 33 Significant increase in farmers’ incomes 33 Emerging Commodity Markets 33 Inputs market reform and rural credit services ⎯ 34 Institutional Changes in Land Management and Rural Enterprises ⎯ 35 Lessons from Chinese agricultural reforms 36 5. NEW ZEALAND 37 Context of reform 37 Reforms to New Zealand agricultural policy in the 1980s 37 Process: from initial idea, through drafting to approval 38 Process: implementation 40 Outcomes 42 Lessons from New Zealand’s agricultural reforms 44 6. CONCLUSIONS 45 Context of Reform 45 Content 46 The process and politics of reform 47 Outcomes of Reform 48 Lessons for Africa and other would-be reformers 49 References and sources 52 4 Comparative Study of Agricultural Reforms Summary Comparing reform of agricultural policy in Bangladesh, Chile, China and New Zealand, this paper derives lessons for countries contemplating reform. In all cases reforms to farm policy were undertaken as part of overall reforms across the whole economy, started in response to a perceived national crisis and usually implemented by new governments with a mandate to make major changes. Political will is, not surprisingly, a necessary condition. In designing reforms and their implementation, much depends on context, including external conditions such as world market prices. The scope for change, and certainly the sequence and pace of reform, may be as much a matter of administrative feasibility as choice. Where outcomes are uncertain and state capacity limited, gradual approaches to reform that allow for learning may be better than swift and comprehensive ⎯ ‘big bang’ ⎯ packages. This working paper presents the first stage of a review • Removal of price and other support to New Zealand of agricultural reform experiences within African farming that began in 1984 and continued into the countries, specifically Ethiopia, Kenya and Malawi. It 1990s. aims to draw out issues for would-be reformers by This review seeks to answer the following questions: examining the experience of four cases of agricultural reform, purposely selected as often being seen as • What were the conditions that created the impetus successful. These are: for agricultural reform? • Reform of agricultural input markets in Bangladesh in • What factors determined the actual content of the the early 1980s, followed by liberalisation of grain reform packages? trading and the cancellation of several longstanding programmes of public distribution of grains during • What challenges were faced in the implementation of the late 1980s and early 1990s; the reform and what lessons, if any, can be learnt from these for future reform programmes? • The impact of economy-wide reforms and counter- reform of land on Chilean agriculture from 1973 • What opposition was there to the reforms and how through to the 1980s; was this overcome? • Introduction of the ‘household responsibility system’ • What factors exerted the greatest influence on the of production and liberalisation of marketing in outcomes of the reform? China starting around 1978; and, 5 Comparative Study of Agricultural Reforms The country cases Farming was affected by changes in land ownership, Bangladesh undertook two waves of agricultural the more open trading regime, and by a reduction in reforms between the late 1970s and early 1990s. In the the provision of public services. By the early 1980s the sector had adjusted to reforms and began to take the first, the markets for agricultural inputs ⎯ above all opportunity to boost exports of fruit, forest products, fertiliser and irrigation equipment were liberalised. fisheries, and wine. The freer market had allowed This led to falling prices, greater availability, and some concentration in supply chains with large increased use of these inputs. Tubewells and pumps, in conglomerates then bringing in capital and know-how. particular, allowed a major expansion of winter From the mid- 1980s to the mid-1990s the farm sector (‘boro’) rice production that saw increases in domestic grew at annual rates that were usually 5% a year or supply of rice outstrip population growth and thereby more. drove down the price of rice. This in turn made it easier to implement the second round of reforms where Reformers in Chile were able to take advantage of an the markets for food grains were liberalised and some authoritarian regime that was determined to reform the large-scale programmes of food subsidies were ended. economy to push through changes that favoured business, albeit at the expense of workers and small Bangladesh benefited from phased implementation of farmers. But the path taken by Chile was far from reforms that allowed for learning, monitoring and being a blueprint: reform went through stages, as adjustment to developments in the markets. Timing lessons, sometimes quite painful, were learned. The was important ⎯ and fortuitous, since the precise configuration of policies was worked out liberalisation of inputs took place just as international through interactions between technocratic economists prices dropped, thereby more than offsetting the loss of ⎯ the ‘Chicago boys’ ⎯ and elite groups within subsidies on inputs. industry and farming, mediated by a leadership that Much of the impetus for reform came from domestic was prepared to take unpopular decisions if convinced concerns over the costs and ineffectiveness of controls by the arguments. on markets and subsidies. Donors were also concerned, In the case of China, the reforms introduced after provided some help for research on the costs, and also 1978 marked a significant departure from previous ended up acting as a target to draw the fire of domestic economic policies. In agriculture, markets for produce opponents of reform. that previously had been under tight control of the state Formal research played a role in revealing the high were partly liberalised. Land that formerly had been costs of existing policies. The numbers were fed into worked by production units was leased out to debate by cabinet briefings, policy seminars and by households who a few years later were even allowed to (leaked) press reports. People were aware that there rent out their plots. Labour markets were eventually were problems, but it seems the numbers shocked them allowed. sufficiently to act. The results have been striking: per capita agricultural Chile’s reforms took place within the context of output more than doubled in the two decades following sweeping changes to overall economic policy carried reforms, and rural incomes have risen considerably out after the coup of 1973. The first phase that lasted making a big dent in poverty. Not all of the increases until 1975 consisted of gradual measures to liberalise in income can be attributed to agriculture: jobs in the economy and open the country for trade, while burgeoning rural industries and remittances

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