INCLUSIVE GROWTH AND RURAL TRANSFORMATION

Should we care?

Dr. Rolando T. Dy Professor, School of Management

University of Asia and the Pacific (UA&P)

August 27, 2015

Davao City

Host: Mindanao Development Authority

Philippines: 40 percent in 2014

46.9 percent in 2000

Thailand: 13.9 percent in 2013

51.5 percent in 2001

Indonesia: 13.8 percent in 2014

21.8 percent in 2006

Vietnam: 17.4 percent in 2010

Philippine Urban Poverty: ~13 percent (c 2010s)

Metro Manila poverty rate: 3.9 percent (2012)

Note: National poverty metrics

Rural Poverty affects Buying Power

http://rksi.org/sites/default/files/document/351/6-country-note-tha.pdf http://www.indonesia-investments.com/finance/macroeconomic-indicators/poverty/item301 http://www.worldbank.org/content/dam/Worldbank/document/vn_PA2012Executive_summary_EN.pdf http://www.tradingeconomics.com/vietnam/poverty-headcount-ratio-at-rural-poverty-line-percent-of-rural-population-wb-data.html Reyes and Valencia (circa 2000a) for rural poverty in 2000.

VICIOUS CIRCLE OF POVERTY

LOW INCOME

LOW SAVINGS/ LOW DEMAND

LOW PRODUCTIVITY

LOW INVESTMENT

Poverty devastates families, communities and nations. It causes instability and political unrest and fuels conflict

-Kofi Annan (1938-)

Low farm productivity and lack of non-farm/ off-farm jobs impact on rural poverty

2008 2009 2010 2011 2012 2014

Philippines 26.5 25.2 25.8

Indonesia 13.3 12.5 12.0 11.3

Vietnam 20.7 17.2

Cambodia 34.0 29.0 22.1 20.5 17.7

Thailand 20.5 19.1 16.9 13.2 Source: World Bank

National Poverty headcount (%)

• Vietnam's poverty rate has fallen from nearly 60 percent to 20 percent in the past two decades (World Bank, 2013)

Total Factor Productivity

• a key measure of the agriculture performance and an important driver of farm incomes.

• It represents how efficiently the agricultural industry uses the resources

https://www.gov.uk/government/statistics/total-factor-productivity-of-the-agricultural-industry

The Philippines trails in Total Agri Factor Productivity (% a year)

Long-Term Medium -Term

1961-2011 2002-2011

Philippines 2.9 2.8

Indonesia 3.7 4.3

Malaysia 4.1 3.3

Thailand 3.2 2.4

Vietnam 4.2 4.2

India 2.8 3.9

Pakistan 3.6 3.0

China 4.3 3.6

http://www.ers.usda.gov/../AgTFPindividualcountries.xlsx

The Philippines lags in farm land productivity, Indonesia leads

Country 1 2 3 4 Average

Philippines 0 2 10 8 3.30

Indonesia 9 7 2 2 1.85

Thailand 5 6 5 3 2.32

Vietnam 5 5 3 3 2.25

Farm Productivity Rankings of 20 Crops, 2013

Ranking by country for every crop. Not all countries will total 20 crops Source of basic data: FAO

Farm Productivity in ASEAN, 2013 (ton per ha)

Country

Rice

Corn

Coco

nut

Sugar

cane

Oil

palm

Bana

na

Coffee

Cassava

Pine

apple

Mango

Philippines 3.9 2.9 4.3 58 11.0 19.4 0.67 10.9 40.5 4.2

Indonesia 5.1 4.8 6.1 75 16.9 56.4? 0.56 22.5 114.8? 10.5

Thailand 2.9 4.4 4.8 76 20.4 11.3 0.98 21.8 24.1 8.3

Viet Nam 5.6 4.4 9.7 65 - 16.5 2.50 17.9 16.8 9.0

Country Cabbage Garlic

Onion Pea

nut

Egg

plant

Rubber Sweet

potato

Tomato Potato

Tobac

co

Philippines 15.1 3.5 9.6 1.1 10.3 0.60 5.7 12.0 14.9 1.56

Indonesia 22.0 6.1 10.1 2.6 11.0 0.87 14.7 17.6 16.3 0.96

Thailand 14.7 5.7 25.6 1.5 15.6 1.60 - 17.8 15.0 2.36

Vietnam 24.4 - 35.9 2.3 - 1.73 10.0 - 13.6 1.93

Source: FAO and industry sources

Source: WTO

ASEAN: Merchandise Trade Balances, 2013

Philippine trade grossly underperforms… Poor crop diversification

Country

Exports

$ B

Imports,

$ B

Surplus

(Deficit)

Indonesia 43 22 +21

Thailand 40 17 +23

Malaysia 30 20 +10

Viet Nam 28 16 +12

Philippines 6.4 7.2 -0.8

Farm Productivity

Raw Materials Non-Farm

Income Farm Income Food Supply

(Local and Export)

Rural Income

Progress Poverty

Jobs Agri-food Mfg

Industries Exports

Import Substitution

CONSUMER MARKETS

Strategic Linkages

Agriculture and Poverty Reduction

• Agriculture reduces poverty directly, by

raising farm incomes, and indirectly,

through job creation and by reducing food prices.

• Agri growth also reduces poverty -- it creates employment for the poor.

- World Bank (http://siteresources.worldbank.org/SOUTHASIAEXT/Resources/223546-1171488994713/3455847-1192738003272/Brief_AgPovRedctn_web.pdf)

Agriculture and Poverty Reduction

Agribusiness

promotes inclusive growth by creating economic growth, farm and non-farm

employment, and reducing poverty.

Marketingunwired.com

careerfair.co.za

“Broad-based growth is

growth that includes all major income groups,

ethnic groups and women, and that

significantly reduces

poverty.”

INCLUSIVE GROWTH

“Allows people to contribute to and

benefit from economic growth.”

“Focuses on economic

growth which is necessary and

crucial condition for

poverty reduction.”

Three pillars: • high, sustainable growth • broader access to opportunities • safety nets

“Participation and benefit sharing.”

Broader objectives than increasing income and GDP. Translate into gains in human development and increased well-being Benefit all groups Reduce poverty and inequality Increasing active participation in the economy Promote the sustainable use of natural resources and climate protection.

CAFOD DISCUSSION PAPER AUGUST 2014 (WWW.CAFOD.ORG.UK)

www.cafod.org.uk/

Key Elements of Inclusive Growth

www.youtube.com

Factors of Production

www.slideshare.net

Entrepreneurship

Why Management matters for Productivity •Better managed organizations within

the same industry and country tend to earn more profits, grow faster •Organizations with good

management practices tend to operate in highly competitive markets

http://www.esrc.ac.uk/_images/Management%20and%20productivity_tcm8-23566.pdf

www.efficientlifeskills.com

• Centrally managed estates for small holders

• FELDA

• FELCRA

Malaysia

• Nucleus-smallholders schemes in rubber and oil palm

Indonesia

• Farmers’ Associations

Taiwan

• Contract Farming

• Good public research and extension services

• Great infra

Thailand

• Strong agriculture research

• Good extension services to small farms

Vietnam

Agribusiness Models in Southeast and East Asia

Strategic Thinking • No one-size-fits-all strategy

• Options: independent small farm, cooperative farm, corporate farm, nucleus estate-outgrowers, consolidate-develop, production villages with multi-block farms.

• Achieve high productivity using good agriculture practice (GAP) from site and seedling selection, fertilization and maintenance

• Management is key.

MOVING AHEAD • Understand market demand

• Compare income and cashflow of alternative crops

• Push inclusive growth close to home

• Build the right capabilities for inclusive growth; give the farmers the choice

• Overcome biases and ideologies

Acknowledgment: Caudillo, Houben and Noor (2015) www.mckinsey.com/insights/

BREAK THE POVERTY CIRCLE History suggests the necessity of productivity increases in small farm agriculture.

…. there are virtually no examples of mass poverty reduction since 1700 that did not start with sharp rises in employment and self-employment income due to higher productivity in small family farms.

Jayne et al., 2010

Poverty is the worst form of violence.

- Mahatma Gandhi (1869-1948)

The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.

- Franklin D. Roosevelt (1882-1945)