The Dragon and the Elephant: Agriculture Reforms in China and India

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1 The Dragon and the Elephant: Agriculture Reforms in China and India Ashok Gulati and Kevin Chen International Food Policy Research Institute International Conference on Dynamics of Rural Transformation in Emerging Economies April 16, 2010 in NASC Complex, Pusa, New Delhi INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

2 Economic Reforms in China & India Firing Up from the Bottom Trickling Down from the Top

3 Impact on Poverty Reduction China during boom in Ag growth ( ) In India- During Green Revolution Period ( ) Source: World Bank (2007)

4 China s Agri-Reforms Journey Pre-Economic Reforms Era- Land reforms & Collectivization ( ) collective production; centrally set targets of A/Y/P; irrigation. Great Leap Forward & Communization ( ) Great Famine ( ; around 30 million starvation deaths)-> Food security will become a major concern Cultural Revolution & Economic Adjustments ( ) communes- no mkt transactions- but free access to health and education, devt of public infrastructure strong initial conditions

5 China s Reforms Journey Post-Economic Reforms Era Decentralized Agricultural Production & Procurement prices ( ) Household Responsibility System (HRS); proc pr raised by 18-23%; mkt liberalization- reduction in quota levels, plan targets not mandatory. agri-growth more than 7% pa; rural incomes grew by more than 14% pa; and poverty fell- 30% (1978) to 15% (1984; official est.) Domestic Marketing Reform and rise of Rural Non-farm Sector ( ) Increasing rural incomes created huge demand for goods of town and village enterprises (TVEs) lead to the rise of RNF employment Post 1993: managed exchange rate pegged to USD; reduced tariffs to get into WTO in 2002; moved towards diversification and raised investments in agriculture

6 India s Agri-Reforms Journey Pre-Economic Reforms Era Pre-Green Revolution ( ) focus on heavy industrialization since 1956; some land reforms initiated; dependence on PL 480 food aid; consecutive drought ( ) a wake up call Green Revolution (1967 onwards): well known success story White revolution (from 1970s onwards): another success story of small holders making India the largest producer of milk (110 mt in 2009) Poverty fell from 54.9% (1973/74) to 44.5% (1983) to 38.9% (1987/88)

7 India s Agri-Reforms Journey Post-Economic Reforms Era Focus of economic reforms on Macroeconomic & Non-Ag reforms ( ) BOP Crisis (1991) & low foreign reserves (USD 1.5 billion) Rupee devaluation in 1991/92; Exchange Rate reformspartially convertible on current a/c & floating exch. Rate Industrial deregulation, tariff and QRs on industrial goods reduced etc. Impact on Agriculture indirect impact on agriculture Improvements in domestic TOT b/w agl & industrial prices; growth in agri improved to 4.7% pa during , but thereafter hit by political instability at home and by East Asian Crisis abroad

8 Food Security: A major concern in both Countries Increasing demand for grain and food with population growth Management of grain reserves: question of government stocks What is the optimal level? (India today has more than 40 mt, and China more than 100 mt) Over-exploitation of natural resources and environmental degradation- sustainable Agri-growth Need for greater investment for resources for agriculture infrastructure, R&D etc.

9 ... How the two have faired on cereal front? Level of Production & Yield of Cereals in China & India ( ) Source: FAOSTAT, 2010

10 Chinese Hybrid Rice: A success story? During million ha of rice land saved & production gr by 44% 63.2% of the total rice pdn area (2008) started research, commercialization; by million ha under rice hybrids China s Rice Acreage & Yield ( ) Source: Li, Xin & Yuan (2009)

11 Indian Bt Cotton A success story? Jump in Yields, Production &... Source: CCI (2010)

12 ... Exports!! > 7 million bales in 2009/10?? Global Financial & Economic Crisis Source: CCI (2010)

13 China: rising exports and imports of agri-produce China s Agro-trade Balance has become negative in recent years USD billion USD billion Agro-food export (including fish and fish products) Agro-food import (including fish and fish products) Agro-food balance (including fish and fish products) Source: Cheng, ppt

14 India: Rising Agricultural Trade 25,000 20,000 Agri exports Agri imports Net Exports Value in $ million 15,000 10,000 5, (P) Source: Agricultural Statistics at a Glance, GoI 2008 Pag e 14

15 Lessons from the Dragon and the Elephant experiences Investments in infrastructure and agri R&D matter Incentives by liberalizing prices, liberating trade, and liberating land markets critical Small holders can rise to the challenge through innovative institutions by clustering approach and by linking to processors and retailers Challenges: stress on water resources as they feed a large and growing population.