Transcript Key constraints

World Bank /
Republic of Belarus
National Conference
Agricultural
Competitiveness
and the Role of the
State
Belarus
Agricultural Productivity and Competitiveness
Impact of State Support and Market Intervention
September 2009
The World Bank
December 3, 2009
Crown Plaza Hotel
Minsk
Republic of Belarus
Matthias Grueninger
Stephan von Cramon-Taubadel
Oleg Nivyevskiy
Dmitry Prikhodko
December 3, 2009
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
1
Agriculture plays an important role in Belarus’ economy and social life
and has experienced considerable productivity increases, but …
Outline:
GDP, constant US$ billion
Agricultural value-added, constant US$ billion
25
2.5
Role in economy
Productivity
20
2.0
Competitiveness
15
1.5
10
1.0
Key constraints
Economic and fiscal
implications
- Economic distortions
5
GDP (constant 2000 US$ billion)
0.5
Agriculture, value added (constant 2000 US$ billion)
- Fiscal constraints
- Risk and dependence
0
85
• But capital productivity and
labor productivity increased
less than in the rest of the
economy.
Labor and fixed capital productivity in Belarusian
agriculture relative to the rest of the economy
%
Towards agricultural
reforms
3.00
75
- Less state control
- Reduce distortions
-De-coupled income
support
2.50
70
2.00
65
1.50
60
Key questions
0.50
0.00
• Agricultural yields and aggregate
output have experienced
considerable growth.
0.0
t/ha
3.50
1.00
• Agricultural value-added has
recovered to its 1990 level
80
Dynamics of wheat yields in Belarus, averages
across all farm types (t/ha)
Labor productivity in agriculture in % of labor
productivity in other sectors
Fixed capital productivity in agriculture in % of fixed
capital productivity in other sectors
55
50
45
40
2000
December 3, 2009
2001
2002
2003
2004
2005
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
2006
2007
2
Some export growth and reduced import dependence,
but dependency on a small number of markets remains
Outline:
Role in economy
Productivity
Competitiveness
Key constraints
Economic and fiscal
implications
- Economic distortions
- Fiscal constraints
- Risk and dependence
Towards agricultural
reforms
- Less state control
- Reduce distortions
-De-coupled income
support
Live animals
Meat and meat products
Fish and crustaceans
Dairy products, milk equivalents
Eggs, mln.
Honey
Products of animal origin
Live trees
Potatoes
Other vegetables
Fruits
Coffee, tea
Cereals
Milling products
Oil seeds and oleaginous fruit
Natural shellac
Plant materials
Fats and vegetable and animal oils
Finished products from meat and fish
Sugar and sugar confectionery
Cocoa and cocoa products
Finished products from grain
Products from vegetables and fruit
Other food products (extracts, essences, yeasts, soups, ice…
Alcoholic and soft drinks
Residues and waste from the food industry (bran, cake,…
Tobacco and its industrial substitutes
• Some sub-sectors
experienced considerable
export growth.
Imports
• And import dependence
has dropped considerably.
Exports
• Agricultural trade is highly
dependent on a small
number of markets
0
50
%
45
200
400
600
800
1000
1200
Belarusian trade balances for all agricultural
products as per Belarusian customs code (US$
million), 2008
40
35
Wheat, barley, corn and other cereals imports in
relation (%) to total domestic production
30
25
20
15
10
Key questions
5
0
2000
December 3, 2009
2001
2002
2003
2004
2005
2006
2007
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
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But large parts of crop and livestock production are
not internationally competitive
Outline:
Role in economy
Productivity
Competitiveness
Key constraints
Economic and fiscal
implications
- Economic distortions
- Fiscal constraints
- Risk and dependence
Towards agricultural
reforms
- Less state control
- Reduce distortions
-De-coupled income
support
The shares of crop production (by marketed volumes of production) in Belarus that is
competitive at financial (0<PCB<1) and economic (0<SCB<1) prices and costs
(in %, 2003-2007)
Crop
Wheat
Corn*
Barley
Sugar beet
Potato
Rapeseed
Crop
Wheat
Corn*
Barley
Sugar beet
Potato
Rapeseed
•
Profitable at financial costs (0<PCB<1)
2003
2004
2005
94.1
97.7
90.7
0.0
0.0
74.7
72.2
91.5
65.7
79.2
88.4
68.6
66.9
45.5
67.5
78.5
87.5
79.9
Competitive at economic costs (0<SCB<1)
2003
2004
2005
26.8
16.8
12.6
0.0
0.0
0.1
60.2
51.4
81.2
0.0
0.0
0.0
78.7
83.2
42.4
39.2
20.7
27.0
2006
73.7
51.4
40.2
73.2
60.7
62.4
2007
89.5
89.0
59.2
78.4
64.0
66.6
2006
11.5
0.3
30.3
5.9
74.7
33.3
2007
69.4
13.5
20.7
0.0
62.1
29.8
Key questions
International competitiveness remains low, albeit with large
differences between crops, years, and farms.
December 3, 2009
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
4
What are the key constraints
to sector competitiveness and further productivity gains?
Outline:
Role in economy
Productivity
Competitiveness
Structural and regulatory characteristics of Belarus’ agriculture sector limit
the managerial freedom of agricultural enterprise managers and constrain
private initiative and (foreign and domestic) investments.
•
Most of the large commercial farms in Belarus have remained under state
control , resulting in limited managerial freedom at the enterprise level to
determine type and volume of inputs and products, to arrange input supply
and output sales, and to determine prices and wages.
•
This also prevented a deep restructuring of the sector based on
competitiveness criteria. Many farms do not seem to evolve towards their
optimum size.
•
Factor and output markets play a limited role in providing signals for
managerial decisions for resource allocations.
Key constraints
Economic and fiscal
implications
- Economic distortions
- Fiscal constraints
- Risk and dependence
Towards agricultural
reforms
- Less state control
- Reduce distortions
-De-coupled income
support
Key questions
December 3, 2009
The average size of large commercial farms in selected CIS countries (in hectares)
Change
1990-2006
+14.4%
Country
1990
2000
2006*
Belarus
3,482
3,824
3,985
Moldova
2,200
950
918
-58.3%
Russia
8,100
5,400
5,298
-34.6%
Ukraine
2,900
2,100
1,326
-54.3%
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
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Key effects:
some productivity gains , but at high cost to the economy and the state
Outline:
Role in economy
Productivity
a) Distortions to the sector and burden on economy
Competitiveness
Key constraints
Economic and fiscal
implications
- Economic distortions
- Fiscal constraints
- Risk and dependence
b) Fiscal implications: high cost / possibly not sustainable
c) Risk exposure and dependence are higher than necessary
Towards agricultural
reforms
- Less state control
- Reduce distortions
-De-coupled income
support
Key questions
December 3, 2009
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
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a) Distortions to the sector and burden on economy
Outline:
Role in economy
Productivity
Competitiveness
Key constraints
Economic and fiscal
implications
- Economic distortions
- Fiscal constraints
- Risk and dependence
Towards agricultural
reforms
- Less state control
- Reduce distortions
-De-coupled income
support
Key questions
December 3, 2009
Massive distortions to agricultural incentives
Considerable burden to the economy overall.
Resource allocations in agriculture and economy overall sub-optimal.
•
The current agricultural policy framework provides support but also
implicitly taxes the sector.
“One foot on the gas pedal and one on the brake at the same time.”
•
Net effect is in support of the sector.
•
Some farms have seen efficiency and productivity increases.
•
BUT: Market and price distortions that lead to resource misallocations
within the sector and tax the rest of the economy.
•
At least two thirds of the budgetary support to agriculture is provided
through measures that are regarded as distorting trade. WTO!
•
This results in a situation in which agricultural productivity and
contribution to growth and rural incomes are lower than they could be.
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
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b) Fiscal implications: high cost / possibly not sustainable
Outline:
•
Agricultural Budgetary : 9 % of the total state budget.
Role in economy
Productivity
•
These expenditures have grown faster than gross agricultural output and
agricultural value-added.
Competitiveness
•
For largely exported products: considerable part of related governmental
expenditures effectively becomes subsidy to the importing country.
•
Global economic and financial
Key constraints
Economic and fiscal
implications
- Economic distortions
- Fiscal constraints
- Risk and dependence
Towards agricultural
reforms
- Less state control
- Reduce distortions
-De-coupled income
support
Key questions
December 3, 2009
•
Shrinking fiscal space in Belarus
•
Current nature and level of support can only be maintained at the expense of other
budget expenditure categories (which might become socio-politically undesirable).
Fiscal support to agriculture in Belarus relative to
agricultural GDP and net profits in agriculture
Budget expenditure relative
to …
(%)
Total fiscal support relative to
…
(%)
… GDP
… gross agricultural output
… agricultural GDP
… net profits in agriculture
… GDP
… gross agricultural output
… agricultural GDP
… net profits in agriculture
2005
3.7
19
47
319
5.0
25
64
431
2006
4.3
22
54
357
5.5
28
69
459
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
2007
4.3
23
58
366
5.4
29
73
462
8
c) Risk exposure and dependence are higher than necessary
Outline:
Role in economy
Productivity
Competitiveness
The narrow focus on a few products and a limited number of markets
•
creates high dependence, especially on Russia, and
•
exposes Belarus’ agriculture sector to unnecessary production and market
risks.
Key constraints
Economic and fiscal
implications
- Economic distortions
- Fiscal constraints
- Risk and dependence
Towards agricultural
reforms
- Less state control
- Reduce distortions
-De-coupled income
support
Key constraint for market diversification:
•
Food safety and quality requirements in potential target markets which
would require considerable on-farm and institutional investments and
capacity building.
Key questions
December 3, 2009
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
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Moving towards agricultural sector reform
Outline:
Role in economy
Productivity
Competitiveness
Key constraints
Economic and fiscal
implications
- Economic distortions
- Fiscal constraints
- Risk and dependence
Towards
agricultural reforms
- Less state control
- Reduce distortions
-De-coupled income
support
Key questions
The key message is not to remove support to agricultural producers,
but to channel support through different instruments, so that private initiative
(including investments) is encouraged, economic potentials are used to their
maximum (efficiency in resource allocations), and needy groups in the society
receive the support they need.
Through a re-orientation of the agricultural policy framework towards less state
control and less distortive measures, and a reallocation of associated budget
expenditures to support sustainable agricultural growth, Belarus could achieve
higher efficiency, competitiveness and growth without compromising on its
food security and rural incomes objectives, and could probably even reduce
budgetary expenditures.
Reforms need to be undertaken cautiously,
taking into consideration business and
institutional capacities and adaption shocks
in the affected part of the population, with
due regard to rural employment and
livelihoods.
Assistance programs could be provided to buffer
against structural adjustment shocks.
December 3, 2009
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
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Outline of potential reform elements
Outline:
Role in economy
Productivity
1. Increasing the efficiency of resource use through less state control
Competitiveness
Key constraints
Economic and fiscal
implications
- Economic distortions
- Fiscal constraints
- Risk and dependence
2. Supporting sustainable agricultural growth through less-distorting
measures
3. Providing income support and adjustment assistance through de-coupled
payments
Towards
agricultural reforms
- Less state control
- Reduce distortions
-De-coupled income
support
Key questions
December 3, 2009
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
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1. Increasing the efficiency of resource use through less state control
Outline:
Role in economy
Productivity
Price liberalization for agricultural inputs and outputs
•
Productive resources will be be guided to their most efficient uses.
•
Positive implications for employment generation and agricultural growth and
ultimately for the provision of attractive income opportunities as a sustainable basis
of rural livelihoods.
Competitiveness
Key constraints
Economic and fiscal
implications
- Economic distortions
Reduction of state control over farm management
•
Enable agricultural producers to respond to market signals by adjusting the nature,
scope, intensity, and technology of their production and the nature of their business
relations for purchases and sales.
•
This will ultimately result in increased efficiency and competitiveness of the sector.
- Fiscal constraints
- Risk and dependence
Towards agricultural
reforms
- Less state control
- Reduce distortions
-De-coupled income
support
Key questions
December 3, 2009
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
12
2. Supporting sustainable agricultural growth through non-distorting measures
Outline:
Agricultural education, training, and advisory services
Role in economy
Productivity
•
Education in market-oriented farm management
•
Competitiveness
Key constraints
Economic and fiscal
implications
- Economic distortions
- Fiscal constraints
- Risk and dependence
Towards agricultural
reforms
- Less state control
- Reduce distortions
-De-coupled income
support
Key questions
•
Market-oriented information systems
Food safety system modernization
•
Sophisticated food safety and quality requirements in today’s
agri-food markets.
•
Demanding appropriate control structures in the countries of origin.
•
•
Especially in EU
Adoption of relevant food safety legislation and establishment of institutional
arrangements would help provide access to new markets.
Institutional capacity for policy analysis
•
December 3, 2009
Providing farm managers with the knowledge for making best use of new opportunities
i.e. adjusting production technologies and farm management practices to market signals
including quality and other requirements.
“Capacity development program for policy impact evaluation, reform program
formulation, and monitoring of program implementation”.
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
13
3. Income support and adjustment assistance through de-coupled payments
Outline:
De-coupled payments to agricultural producers
Role in economy
Productivity
Competitiveness
•
•
•
Key constraints
Economic and fiscal
implications
- Economic distortions
As socially motivated transfers to a defined part of the society.
As payments for environmental services and other externalities related to agricultural
production.
As adjustment incentives (reducing the burden that the phasing-out of tradedistorting measures could create).
Effects:
•
•
Leaving in place financial assistance to farmers but reducing their distorting effects.
Less fiscal relief, but increased acceptability of reform measures.
- Fiscal constraints
- Risk and dependence
Towards agricultural
reforms
Structural adjustment assistance
•
Elimination of less profitable lines of
production, or the scaling-down or
closing of enterprises altogether,
will cause hardship for affected
population.
•
Producer retirement or retraining programs
Substantially reduce these effects.
- Less state control
- Reduce distortions
-De-coupled income
support
Key questions
•
December 3, 2009
Thus increase the acceptability of reforms.
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
14
Key questions to address in moving towards policy reform
Outline:
•
What are the key objectives the state / country wishes to achieve?
•
Role in economy
Productivity
Which indicators shall be measured to determine the achievement of these objectives?
•
What are the instruments (policies) in principle available to achieve these objectives?
•
Competitiveness
What is the (theoretical) impact of these instruments on the agriculture sector and
rural populations?
Key constraints
•
Who wins / who loses? (producers, consumers, taxpayers)
•
Long-term / short-term?
•
Economy-wide and fiscal effects and administrative burden vs. agriculture sector / agricultural
producer-specific effects.
Economic and fiscal
implications
- Economic distortions
- Fiscal constraints
- Risk and dependence
•
Towards agricultural
reforms
- Less state control
- Reduce distortions
-De-coupled income
support
If policy changes are desired, how should they be structured and sequenced?
•
Vertical reforms (all aspects – input prices, output prices, managerial freedom etc. – but only
selected sub-sector (for example flax or dairy)
or horizontal reforms (one aspect but affecting all sub-sectors) ?
•
Timeframe?
•
How can one monitor implementation progress in the reform program?
•
What are the (empirical) effects / impact on the agriculture sector? (Evaluation)
Key questions
December 3, 2009
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
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Outline of a policy monitoring and evaluation program
“Capacity development for the design and implementation of agricultural reform
programs” (IDF Grant application)
Component 1: Development of an M&E system for policy impact analysis
1) Monitoring the achievement of objectives
•
Assess the extent to which M&E is used to support national policy formulation, planning, budget decision-making (domestic support allocation)
•
Confirm objectives and establish enhanced indicators for an assessment of the impact of policy measures on agricultural systems
•
Identify methodologies and related data requirements to measure extent to which objectives are being achieved
2) Capacity development in policy analysis (chosen methodologies)
•
Distortions and policy-induced transfers
•
Farm-level competitiveness, productivity, and efficiency analyses
3) Institutional development
•
Public administration and control System for agricultural policy implementation and monitoring
Component 2: Development of a policy reform program
•
Evaluation of current agricultural policies
•
Elaboration of policy reform options and analysis of their
•
Definition of the process of governmental review of options and decision-making
Component 3: Development of an M&E system for the implementation of the reform program
•
State monitoring of policy impact
•
Public participation
Component 4: Implementation support
•
Intensification of international partnerships
•
Operational support to implementing agency for grant implementation
•
Audit
December 3, 2009
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
16
Thank you
December 3, 2009
Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention
17