1999 - RURAL NEGLECT

By Philip Bowring

Manila: The Asian crisis has been a sharp reminder that for most of the region a thriving rural sector provides the best underpinning of growth. Governments are looking again at their agricultural policies.

Attention in recent years has been almost entirely focussed on industrialisation and investment in the urban sectors. That generated very rapid growth but, as it turns out, over- investment and inefficient use of resources. There cannot be rapid growth without urbanisation and a shift to manufacturing which usually brings higher valued-added. But the move needs to be backed by rising farm productivity.

The Asian crisis has impacted the rural sector in three ways.

* In Indonesia and the Philippines, el Nino drought in some regions caused huge drops in output and more suffering than the financial crisis. However, recovery seems to be rapid.

* Currency devaluations and rising food prices caused a massive shift in the internal terms of trade in favour of farmers and were a bonanza for exporters, especially palm oil producers who enjoyed soaring world prices. Thus even in an Indonesia ravaged by drought and recession rural consumption has increased 10% over the past year, according to the World Bank.

* Fiscal deficits have forced governments to re-think subsidies, whether to keep food prices low for consumers or reduce farm input subsidies. In Indonesia, the end of some commodity monopolies has also helped farmers. Policy generally is shifting from food self-sufficiency to maximising farm incomes via market forces, relying on imports to fill supply gaps.

But the crisis has also been a reminder of how well most east Asian countries were long doing down on the farm and what a stabilising force a strong rural sector can be at a time of financial turmoil.

The most remarkable long term achievement has been that of Malaysia. Although productivity of farm workers is still only 52% of the average for the economy, it has been increasing at a faster rate -- an astonishing 6% a year over the past fifteen years. This is partly due to investing in technology and partly to replacement of rubber plantations with oil palm, which is much less labour intensive. It also abandoned attempts at rice self-sufficiency.

Malaysia's achievements were driven by a labour shortage. But, according to Asian Development Bank data, manpower abundant China (4%) and Indonesia (3.5%) also have very creditable results which have underpinned urbanisation, releasing labour for industry while keeping agricltural production growing fast enough to deliver rising living standards to a growing population.

Land productivity for these leaders shows similar patters, with Malaysia (6% a year) at the top of the league followed by Indonesia (5.5%) and China (5%).

Thailand has been less successful, its increases in output being more a result of land and labour inputs. Productivity of land and labour has increased by only 2.5% a year, which helps explain why the rural/urban income gap in Thailand is so conspicuous despite the growth of non-farm income in rural areas.

Thailand's achievements are roughly similar to India which has been, as ever, trundling along with respectable land productivity increases of nearly 3% a year but labour ones of just half that amount.

The most notable exception to southeast Asia's record of success has been the Philippines where rural infrastrucutre investment has been minimal. Farmers have had scant incentives as most productivity gains have been siphoned off by landlords and intermediaries. A persistently overvalued exchange rate has been another obstacle.

Failures on the farm partly explain why manufacturing -- apart fron export processing -- has also stagnated. The net result is that the Philippines has become dependent on low income services for employment, and remittances from overseas workers to sustain consumption.

As for the future around the region, there seem to be three different dangers. Firstly, that a pre-crisis trend to progressively lower investment in and support for agriculture will continue and undermine future productivity growth. Secondly, that return of national prosperity will mean the return of subsidies and other distortions. And thirdly that the richer countries will follow the examples of Japan, Europe, Korea and Taiwan in setting very high farm prices. These narrow urban/rural income gaps and encourage huge inputs of fertiliser etc. But high manpower productivity is achieved at the expense of total factor productivity, not to mention more efficient producers elsewhere.



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