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
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
* 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
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
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
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
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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