ISSN 1819-4591 POLICY ASSISTANCE SERIES 7 Bureau régional pour l’Afrique Rethinking public policy in agriculture Lessons from distant and recent history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¥'"0 Rethinking public policy in agriculture: 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