C. Peter Timmer

Supermarket revolution in Asia and emerging development strategies to include small farmers

A “supermarket revolution” has occurred in developing countries in the past 2 decades. We focus on three specific issues that reflect the impact of this revolution, particularly in Asia: continuity in transformation, innovation in transformation, and unique development strategies. First, the record shows that the rapid growth observed in the early 2000s in China, Indonesia, Malaysia, and Thailand has continued, and the “newcomers”—India and Vietnam—have grown even faster. Although foreign direct investment has been important, the roles of domestic conglomerates and even state investment have been significant and unique. Second, Asias supermarket revolution has exhibited unique pathways of retail diffusion and procurement system change. There has been “precocious” penetration of rural towns by rural supermarkets and rural business hubs, emergence of penetration of fresh produce retail that took much longer to initiate in other regions, and emergence of Asian retail developing-country multinational chains. In procurement, a symbiosis between modern retail and the emerging and consolidating modern food processing and logistics sectors has arisen. Third, several approaches are being tried to link small farmers to supermarkets. Some are unique to Asia, for example assembling into a “hub” or “platform” or “park” the various companies and services that link farmers to modern markets. Other approaches relatively new to Asia are found elsewhere, especially in Latin America, including “bringing modern markets to farmers” by establishing collection centers and multipronged collection cum service provision arrangements, and forming market cooperatives and farmer companies to help small farmers access supermarkets.

Food price policy: The rationale for government intervention

Abstract Policy-makers in the most successful developing countries have not accepted either of the two major schools of thought on food price policy. The neo-classical school favours free trade to maximize efficiency of resource allocation. The structuralist school favours interventions to satisfy goals for income distribution. Especially in the rapidly growing, rice-based economies of Asia, policy-makers have been more concerned about stability of domestic prices than their level relative to world prices. This concern, traditionally dismissed by economists as purely political, is justified on economic grounds because of improved macroeconomic and dynamic efficiency from stable food prices. The paper identifies both the benefits from food price stability and the costs of achieving it.

Agriculture and Pro-Poor Growth: An Asian Perspective

No country has been able to sustain a rapid transition out of poverty without raising productivity in its agricultural sector. Despite this historical role of agriculture in economic development, both the academic and donor communities lost interest in the sector, starting in the mid-1980s. This was mostly because of low prices in world markets for basic agricultural commodities, caused largely by the success of the Green Revolution in Asia. After two decades of neglect, interest in agriculture is returning. This paper explores the reasons why agriculture is back on the policy agenda for donors and poor countries alike. The most important reason is new understanding that economic growth is the main vehicle for reducing poverty and that growth in the agricultural sector plays a major role in that overall growth as well as in connecting the poor to growth. There is a sharp debate, however, between “optimists” and “pessimists” over the potential for small-scale agriculture to continue to play these historic roles. In a world of open trade, ready availability of cheap food in world markets, continued agricultural protection in rich countries, and economies of scale in access to food supply chains that are increasingly dominated by supermarkets and export buyers, large-scale farms with state-of-the-art technology and access to efficient infrastructure can push smallholders out of commercial markets. Consequently, the paper concludes, geographic coverage and operational efficiency of rural infrastructure, coupled to effective investment in modern agricultural research and extension, will determine the future role for agriculture in poverty reduction.

The macro dimensions of food security: economic growth, equitable distribution, and food price stability

Abstract Rather than asking how to cope with hunger and famine, the question might be how to escape their threat altogether. Important in this regard is recognizing that agriculture and the rural economy are greatly influenced by policies and outcomes in the rest of the economy. Strategies include economic growth with unchanging income distribution, and growth with redistribution. The latter encourages balanced growth to create non-farm employment opportunities, while investing in rural infrastructure.

Getting agriculture moving: do markets provide the right signals?

Abstract Political discrimination has often pushed the domestic value of agriculture in developing countries below its value in markets at the border. This paper seeks to explain the reasons why border prices themselves undervalue the linkages that agriculture has to economic growth in the early stages of development. If agriculture is critically important to stimulating and sustaining rapid economic growth, those countries that fail to correct this discrimination exact a heavy toll in economic performance. Furthermore, the poorest countries will suffer the most. Agricultural development and development of the non-agricultural economy are closely linked. The traditional market-mediated linkages form the core of economic analysis of the role of agriculture in economic development: providing labour for an industrial work-force, food for an expanding population with higher incomes, savings for industrial investments, markets for industrial output, export earnings to pay for imported capital goods, and raw materials for agro-processing industries. A second category of linkages is not well mediated by market forces, even when markets are working well. The impact of agricultural growth on the rest of the economy through non-market linkages can be traced using a simple growth-accounting framework that examines contributions to the labour force, capital investment and the productivity with which these two physical factors are utilised. Several linkages stand out as likely to be important and potentially measurable because they draw on the efficiency of decision making in rural households, the low opportunity cost of their labour resources, the opportunity for farm investment without financial intermediaries, the potential to earn high rates of return on public investments that correct for urban bias, the contribution of food price stability to increased efficiency in investment decisions, and the impact of growth in food production on widespread improvement in nutrient intake and labour productivity. Each of these factors alone, as public investment and favourable policy stimulate growth in the agricultural sector, should cause an increase in the efficiency of resource allocation and thus higher total factor productivity. Several of these mechanisms will also serve to speed factor accumulation by increasing the savings rate or improving factor mobility.

A Century-Long Perspective on Agricultural Development

This article strategically surveys the past century’s literature on agricultural development. We organize the discussion around three “grand themes” that reveal the richness of agricultural development as an intellectual endeavor. First, we explore the role of agriculture in the broader development process from a macroeconomic and political economy perspective. We then examine the role of technological and institutional change in successful agricultural development. Finally, the focus turns to a microeconomic perspective on agricultural household decision making and the problems of imperfect and missing markets, asymmetric information, and transactions costs that lead to widespread apparent inefficiency and disequilibrium.

The road to pro-poor growth: the Indonesian experience in regional perspective

“Pro-poor growth” is the new mantra of the development community. Most donor agencies have active research programs underway to understand the pro-poor process, and the World Bank, with British, French and German bilateral support, is already studying how to operationalize the concept (USAID, 2004; World Bank, 2004). Definitions vary, but they all revolve around connecting the poor to rapid economic growth so there is a concomitant rapid reduction in poverty. What is new is the focus on economic growth as the primary vehicle for sustainable reductions in poverty, distributional initiatives and processes playing a secondary role. This exploratory essay, commissioned by the Indonesia Project at Australian National University (ANU), places this new interest in pro-poor growth in regional perspective and then attempts to draw historical and policy lessons for Indonesia.1 The main challenge is to link our relatively robust understanding of the growth process with much more limited understanding of distribution processes. A panel data set of eight Asian countries provides grist for the empirical mill. A revised version of this paper is forthcoming in the Bulletin of Indonesia Economic Studies.

Food Security and Economic Growth: An Asian Perspective

Food security is an elusive concept. Many economists doubt that it has any precise meaning at all. Having enough to eat on a regular basis, however, is a powerful human need, and satisfying this need drives household behavior in both private and public markets in predictable ways. Indeed, the historical record suggests that policy initiatives by central governments to satisfy this need for food security—at the level of both households and national markets—can speed economic growth in countries where a substantial proportion of the population does not get enough to eat. Paradoxically, in most successfully developing countries, especially those in the rice-based economies of Asia, the public provision of food security quickly slips from its essential role as an economic stimulus into a political response to the pressures of rapid structural transformation, thereby becoming a drag on economic efficiency. The long-run relationship between food security and economic growth thus tends to switch from positive to negative over the course of development. Because of inevitable inertia in the design and implementation of public policy, this switch presents a serious challenge to the design of an appropriate food policy.

The Structural Transformation as a Pathway Out of Poverty: Analytics, Empirics and Politics

A powerful historical pathway of structural transformation is experienced by all successful developing countries, and this Working Paper presents the results of new empirical analysis of the process. Making sure the poor are connected to both the structural transformation and to the policy initiatives designed to ameliorate the distributional consequences of rapid transformation has turned out to be a major challenge for policy makers over the past half century. There are successes and failures, and the historical record illuminates what works and what does not. Trying to stop the structural transformation does not work, at least for the poor, and in fact can lead to prolonged immiseration. Investing in the capacity of the poor to cope with change and to participate in its benefits through better education and health does seem to work. Such investments typically require significant public sector resources and policy support, and thus depend on political processes that are themselves conditioned by the pressures generated by the structural transformation itself.

Behavioral dimensions of food security

The empirical regularities of behavioral economics, especially loss aversion, time inconsistency, other-regarding preferences, herd behavior, and framing of decisions, present significant challenges to traditional approaches to food security. The formation of price expectations, hoarding behavior, and welfare losses from highly unstable food prices all depends on these behavioral regularities. At least when they are driven by speculative bubbles, market prices for food staples (and especially for rice, the staple food of over 2 billion people) often lose their efficiency properties and the normative implications assigned by trade theory. Theoretical objections to government efforts to stabilize food prices, thus, have reduced saliency, although operational, financing, and implementation problems remain important, even critical. The experience of many Asian governments in stabilizing their rice prices over the past half century is drawn on in this paper to illuminate both the political mandates stemming from behavioral responses of citizens and operational problems facing efforts to stabilize food prices. Despite the theoretical problems with free markets, the institutional role of markets in economic development remains. All policy instruments must operate compatibly with prices in markets. During policy design, especially for policies designed to alter market prices, incentive structures need to be compatible with respect to both government capacity (bureaucratic and budgetary) and empirical behavior on the part of market participants who will respond to planned policy changes. A new theoretical underpinning to political economy analysis is needed that incorporates this behavioral perspective, with psychology, sociology, and anthropology all likely to make significant contributions.