CEM Agro Eng

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Performance and Prospects for Belarus Agro-Food Sector Country Economic Memorandum

The Approach: 

Recently approved Program on the Revival of Rural Areas 2005-2010 has two objectives: development of rural areas and creation of competitive agro-food sector The study was focused on the second objective and its recommendations are contained in the framework of the declared agricultural policy of the Program The Approach

Objectives of the study: 

Objectives of the study What are the sources of this impressive performance? Has recent performance improved competitiveness? Is it sustainable?

Impressive performance 2000-04: 

Impressive performance 2000-04 Agriculture output growth Agriculture productivity growth Agro-food industry growth Agriculture and food trade growth

Cumulative production volume index (1999=100): 

Cumulative production volume index (1999=100)

The growth in land and labor productivity was impressive (2000=100): 

The growth in land and labor productivity was impressive (2000=100)

Food-processing output growth has exceeded agricultural output growth (2000=100): 

Food-processing output growth has exceeded agricultural output growth (2000=100)

Agriculture and food exports grew faster then imports: 

Agriculture and food exports grew faster then imports

Sources of improved performance: 

Sources of improved performance Private sector output growth Improved efficiency of production in the non-private sector Reduction in relative price distortions Supported by subsidies

Private sector accounted for about 49% of output growth: 

Private sector accounted for about 49% of output growth Private sector has different specialization Value of products produced by the private sector grew strongly in real terms Responded well to increased access to agricultural land and price incentives

Volume of output by private and non-private sectors: 

Volume of output by private and non-private sectors

Significantly different production profile: 

Significantly different production profile

Strong price incentives drove efficiency gains : 

Strong price incentives drove efficiency gains On average producer prices increased in real terms only marginally, but the reduction in relative price distortions was substantial. Producers responded to worsening “internal terms of trade” by improving efficiency of production Negative profitability overall necessitating larger budgetary support to sustain output growth

Agricultural prices increased moderately while “internal terms of trade” declined substantially: 

Agricultural prices increased moderately while “internal terms of trade” declined substantially

Relative price distortions have declined substantially: 

Relative price distortions have declined substantially

Agro-Food Sector is competitive : 

Agro-Food Sector is competitive Primary sector subsidizes agro-processing sector – the main source of competitiveness Consumer subsidy is lost in processing and marketing inefficiencies

Primary sector is disadvantaged compared to the processing and the retail sub-sectors: 

Primary sector is disadvantaged compared to the processing and the retail sub-sectors Lower than international farm-gate prices subsidize agro-processors Lower prices inflict financial losses which have to be covered by the budget support Despite subsidization agro-processors have very low returns

Agricultural producers are being taxed relative to producers in Russia (Ratio): 

Agricultural producers are being taxed relative to producers in Russia (Ratio)

Estimated implicit tax on agricultural producers: 

Estimated implicit tax on agricultural producers

Agro-processing sector is inefficient : 

Agro-processing sector is inefficient Small and inefficiently sized Low capacity utilization High depreciation The extent of marketing inefficiencies is disguised by controls on trading margins Consumer subsidy is very small as retail price levels in Belarus are broadly in line with Russian prices

Agro-processing efficiency: 

Agro-processing efficiency

Consumer prices are broadly similar with Russian retail prices (Ratio): 

Consumer prices are broadly similar with Russian retail prices (Ratio)

Budget Support has increased substantially : 

Budget Support has increased substantially Over 2000-2004, the level of Budget Support has increased by 164% to support the growth in output by 26% WTO “Amber Box” measures are fixed at US$57/Ha. Credit Subsidy the fastest growing element of State Support creates serious future liabilities

Growth in state budgetary support (constant millions US$): 

Growth in state budgetary support (constant millions US$)

Categories of budget support (constant million US Dollars): 

Categories of budget support (constant million US Dollars)

Is the recent performance sustainable?: 

Is the recent performance sustainable? Risks Opportunities

Risks to sustainability : 

Risks to sustainability Exchange rate devaluation effect already exploited Worsening “input terms of trade” will require increasing levels of state support for output expansion, which is already limited by WTO commitments Capital constraints

Opportunities: 

Opportunities Increasing farm-gate prices – modernization of the agro-processing sector is necessary Private sector – 49% of growth, could expand further, however needs higher farm gate prices

Recommendations (1): 

Recommendations (1) Expansion of the export-oriented food-processing sector Reduction in the number of plants and modernization Abolish price controls and trading restrictions A joint study of the Government of Belarus and interested donors regarding the feasibility of such investment

Recommendations (2): 

Recommendations (2) Bring producer prices in line with international prices; Output prices – scope for increase; Input prices – scope for increase

Recommendations (3): 

Recommendations (3) Permit greater autonomy in decision making by farm managers willing to take risks; Put private farmers on equal footing with agricultural co-operatives; Transfers to households to be made more transparent

Recommendations (4): 

Recommendations (4) Investment in extension, education and training Enforce repayments of rural credit; Make state support more transparent (calculated according to OECD methodology)

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