Rural Development…for rich and for poorEU rural development

Developing country rural development

Jorge NunezCEU

Master course Economics

Deserves subsidies?

Does not deserve Subsidies?

Issues covered Rural vs. urban, trends and pressures The EU rural development policy – history,

objectives, impacts The changing landscape of rural economies

Rural development in developing countries Objectives Importance Changing focus

GLOBAL CHALLENGES Population is growing Urbanisation speeding up: Every day urban areas

grow by almost 150,000 new people, either due to migration or births. Between 2011 and 2050, the world urban population is projected to rise by 72% i.e. from 3.6 billion to 6.3 billion and increase the population share in urban areas from 52% in 2011 to 67% in 2050.

Urbanisation in last 40 years is equivalent to the urbanization achieved in the preceding 4000 years.

Since 2009 share of urban pop. Larger than rural. Urban and rural areas are competing for

resources, e.g. water and land.

Challenges For all:

Feeding world population Reduce the environmental impacts of production,

retain and enhance soil fertility Reduce food waste an improve food allocation across

social groups and countries Adapting to climate change Higher energy prices

Poor countries: Guarantee balanced nutrition

Rich countries: Avoiding rural depopulation Create non farm opportunities “Landscaping”

EU rural development policy It is the second pillar of the CAP Originally exclusively a farm restructuring support and

support for the food industry modernisation (very important in new MS)

Policy to promote specific objectives such as organic faming

Over the years more holistic – targeting rural economy not only farms (but clashed with EU structural funds)

European Commission publishes in 1988 “The Future of Rural Society” calling for a more global (holistic) Approach to rural development (rural economies depend of many sectors).

Growing internal and external pressures: Overproduction and rising costs GATT (WTO) pressures

EU Rural Development It is a policy in constant reforms It has 40 years history, but It is still defining its role The objectives and priorities are changing It success depends largely on non financial, non

regulatory aspects: Understanding problems in the ground Planning Coordination Collaboration

Characteristics Rural development policy covers all of the EU rural

areas, rich and poor Despite repeated reforms still focuses mainly on

agriculture. It has forestry and and other rural business

programmes, but underutilised. It is generally believed that the rural areas are

predominantly agricultural, poor and are losing population

While agriculture plays a very important role as predominant land user, it has declined significantly for the economy and employment. In fact, even in the predominantly rural areas employment in agriculture is around 13 % with both industry and services being more important (EU 25).

Areas of Natural Constraint Scheme (ANCs) (old LFAs)

Environmental programme: remoteness, difficult topography and poor soil conditions

In the past very weakly justified – a lot to socio-cultural programmes in rich areas.

The Council agreed to better definitions and finally increased focus for the new period 2014-2020

Before the LFA area distribution seemed “political” rather than needs based in nature, and the flat rate nature of payments may have created an element of over-compensation in areas where disadvantages compared to non-LFAs were minimal, and one of under-compensation in the most severely disadvantaged regions.

LFAs as a proportion of total UAA per member state Source: Court of Auditors (2003)

Agri Environment Introduced by Commissioner Fishler copying

Austrian system…. But criticised as actually finances existing

farming practices… In some areas though, it has reduced pollution.

However, in many cases taken up by farmers that already did it and not by those who did not.

New CAP tries to link normal payments to something similar, but is weaker -> Cross compliance and green payments.

Diversification Still linked with farming activities Otherwise it would clash with EU social funds However, some areas where RD is possible, other

funds are not available… restricting choice.

LEADER programme Successful but complex experiment to develop

rural areas But has little political support, as no strong

beneficiary group in it

Developing countries Developing world: 5.5 billion people - 3 billion live

in rural areas, nearly half of humanity. 2.5 billion are in households involved in

agriculture, and 1.5 billion are in smallholder households

Rural poverty fuels rapid urbanisation leading to urban slums (often worse than rural poverty)

Developing country poverty HAS declined, 80% of the decline from rural poverty reduction not caused by migration – but imbalanced, mainly South East Asia

Is agriculture the main development tool? No, but agriculture is a precursor for development In many developing countries there is a

comparative advantage that can help to lay the ground for further development. Is a source of capital.

It is important as a basis – but we need to create the right environment for moving further: Processing, packaging, high value goods (see

Thailand) Remember tariff escalation impact on development

Use rural development to educate the next generation – of engineers!

Agriculture has been neglected The role of agriculture in development has been

neglected. There has been a push towards urbanisation and

low value industrialisation after the green revolution in Asia, neglecting R&D in agriculture.

Lack of land ownership, the development of large exploitations and land grab has affected the environment and generated poverty.

Steps needed in agriculture

Property rights need to be clear – otherwise: Land degradation No borrowing possible, as there is no collateral -> poverty

Training (extension services) Creating credits systems for small farmers –

microcredit systems (see Grameen Bank) Increase in research and development in

agriculture Infrastructure improvement – water access Reduction in trade barriers, tariff escalation and

reasonable non-tariff barriers (e.g. SPS)

Foreign investment Depends how, the

Madagascar government was toppled

China does land grab to feed Chinese, not a development approach

Rapid changes are happening

Today’s investments in biotechnology, concentratedin the private sector and drivenby commercial intereststhe exception is Bt cottonin China and India. Low public investmentin biotechnology and slow Progress in regulating possible environmental andfood safety risks have restrained the development of GMOs that could help the poor. Benefits of these technologieswill be missed unless the international developmentcommunity sharply increases its supportto interested countries.

FOOD SECURITY impacts on Socio-political instability

Green revolution brought an elimination of food scarcity at global level… and complacency

Low investment in agriculture Urbanisation and climate change have hit now

hard Food prices increased and has led to many

concerns on food safety

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5-20% higher than 2012 levels for the next decade

But not higher than in 80s!

High food prices and unrest

Bellemare 2011, Lagi et al. 2011, Arezki & Brueckner 2012.

Food security worries can spark public protest when mixed w/sense of broader injustices.

But not everywhere Barrett et al:

Unrest is linked with social injustices in countries

Should we interfere in markets, or is the issue somewhere else.

Markets send signals, signals create effects of production, if we cancel price signals (global food stocks, for example), how will production react?

Is climate change increasing risks, or decreasing risks… both… for next lectures….