Telling The Two Transformations Tale:

Emerging Challenges to Poverty

Reduction


Kostas Stamoulis
Prabhu Pingali
Ellen McCullough
Agricultural and Development Economics Division (ESA)
FAO, Rome

Objectives and Structure

Poverty Focus
Describe fundamental changes in food systems
Identify the forces which drive those changes and
the role of trade
Underline the importance of heterogeneity
What are emerging challenges for poverty
reduction ?
Transformation and Food
System Changes
Transformation process: The process in which the
share of agriculture declines in favour of other
sectors

Changes in Food Systems : the changes in the
organization of food markets at all levels as a result
of changes in demand patterns and technology
Agricultural Transformation:
a global phenomenon
Low
Income
Lower
Middle
Income
Upper Middle
Income
High Income
0
10
20
30
40
50
60
70
80
-1,000 4,000 9,000 14,000 19,000 24,000 29,000 34,000 39,000 44,000 49,000 54,000
GDP (US$ per Capita)
Share of
Agriculture
(% GDP)
High Human Development
Medium Human Development
Low Human Development
Source : Pingali ( 2006)
Transformation Process
0
.
2
.
4
.
6
.
8
A
g
r
i
c
u
l
t
u
r
e
/
G
D
P
4 6 8 10 12
log(1995 US$)
agriculture/GDP agriculture/GDP*lac
fitted value whole sample fitted value lac
Source: WDI 2003
(1961-2002)
Agricultural Share on GDP and Income per capita
Source : Bravo, Ortega and Lederman (2004)
The Changing Food System
Inputs
Primary
production
Processing
and
packaging
Distribution
and retail
Consumption
Individuals Enterprises
Governed by Institutions:
Rules and regulations
Markets (Contracts)
Transport Services
Food Systems Changes:
Driving Forces
Rising incomes
Diet diversification out of staples (Engels Law, Bennett Law)
Demographic Shifts
Urbanization
Rising food prepapers opportunity cost
Technology
Transportation and food handling
Chain management (logistics )
Globalization
Foreign direct investment (in retail and production)
Trade liberalization

The other face of globalization
FAO: State of Food Insecurity, 2004
The Emergence of Large Retail

New Rules for a New Game
Centralization of procurement
Squeezing of supplier lists
Shift from spot markets to specialized wholesalers
to guarantee q and q
New intermediaries and logistics
Contract farming
Preference for limited transactions
Rise of private standards
Quality, safety not common for internal trade
The contribution of International
trade
Trade links and interactions have not been
explored in a systematic way
Trade has not been the primary mover
Stable shares of imports in total consumption of
dev.ing countries
Small relative to sales of processed by subsidiaries
Meat, F and V trade shares in total consumption
unchanged in a 20 years
The Reardon U hypothesis of the role of trade
Relative Importance of Trade, 1960-2005
(Share of imports and exports in domestic food supply)
1960 1970 1980 1990 2000 1960 1970 1980 1990 2000
World
Africa
Asia
South
America
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1960 1970 1980 1990 2000
Cereals Fruits Vegetables
source:
FAOSTAT 2006
The U hypothesis
Share of Imports of processed products originating in the region
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
9
8
6
1
9
8
7
1
9
8
8
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
Years
S
h
a
r
e
Argentina
Brazil
Transforming Food Systems :
Challenges for Rural Poverty
Reduction
Rapid spread of the chain model
expected in future
Competition for market share is at the
chain level ( margins)
Standards, quality and stability not just for
exports
More generalized impacts than on small
farmers
Food System Transformation:
Country-level heterogeneity
Traditional
Agriculture
Modernizing
Agriculture
Industrialized
Agriculture
Share of Ag
in GDP
>30% 10%-30% <10%
Share of Ag
labor in total
>50% 15-50% <15%
Market
Orientation
Subsistence National International
Output
Mix
Food Staples
Food Staples
+ high value
Highly
differentiated
Scale
Economies
Not Important May be Important Important
Transformation Process: Country Classifications
0
20
40
60
80
100
0 10 20 30 40 50 60 70
Share of Agriculture in GDP (%)
Rural
Population
(% of total)
Low Income
Lower-Middle Income
Upper-Middle Income
High Income
URBANIZED
Economies
CAT 2
CAT 1
Agricultural transformation:
Heterogeneity across production systems
Increasing scales of production
Reversal of the farm size productivity
relationship
Declining competitiveness of marginal
lands
Increasing risk of biodiversity loss and
environmental sustainability
Rural Non Farm Income Shares
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
A
l
b
a
n
i
a

2
0
0
2
B
o
s
n
i
a

2
0
0
1
B
u
l
g
a
r
i
a

1
9
9
5
B
u
l
g
a
r
i
a

2
0
0
1
G
h
a
n
a

1
9
9
2
G
h
a
n
a

1
9
9
8
M
a
l
a
w
i

2
0
0
4
E
c
u
a
d
o
r

1
9
9
4
E
c
u
a
d
o
r

1
9
9
5
E
c
u
a
d
o
r

1
9
9
8
G
u
a
t
e
m
a
l
a

2
0
0
0
N
i
c
a
r
a
g
u
a

2
0
0
1
P
a
n
a
m
a

1
9
9
7
P
a
n
a
m
a

2
0
0
3
N
e
p
a
l

1
9
9
6
V
i
e
t
n
a
m

1
9
9
8
RNF
Farm
Rural Income Generating
Activities ( cont)
Figure 6: RIGA income shares
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
A
l
b
a
n
i
a

2
0
0
2
B
o
s
n
i
a

2
0
0
1
B
u
l
g
a
r
i
a

1
9
9
5
B
u
l
g
a
r
i
a

2
0
0
1
G
h
a
n
a

1
9
9
2
G
h
a
n
a

1
9
9
8
M
a
l
a
w
i

2
0
0
4
E
c
u
a
d
o
r

1
9
9
4
E
c
u
a
d
o
r

1
9
9
5
E
c
u
a
d
o
r

1
9
9
8
G
u
a
t
e
m
a
l
a

2
0
0
0
N
i
c
a
r
a
g
u
a

2
0
0
1
P
a
n
a
m
a

1
9
9
7
P
a
n
a
m
a

2
0
0
3
N
e
p
a
l

1
9
9
6
V
i
e
t
n
a
m

1
9
9
8
Crops Livestock Ag. wage RNF wage RNF self-employment Transfers Other
Conclusions
Rapid transformations change the balance
of concerns between domestic factors and
international trade.
Heterogeneity of impacts and focus
Commodity focus: narrow
Agriculture focus : narrow
Up-stream and downstream activities
Conclusions ( cont)
Under-researched aspects, hard to capture
in global models
Several policy prescriptions overlap
Balance of awareness much lower.. until
today.
Thank you
http://www.fao.org/es/esa/ejade/vol_1/vol_
1_2/cover_en.htm
Food System Transformation:
Household Level Heterogeneity
Access to assets, credit
Management skills (source of rents)
Access to services, such as appropriate
production and marketing extension and
technology
Institutions
Pluriactivity and Diversification