By Tomohide Sugino

East Asia has attained high degrees of food self-sufficiency and economic growth; however, in doing so, income inequalities have expanded within rural areas and between urban and rural areas. It has become increasingly important to alleviate rural poverty by various means including increasing agricultural income and creating rural jobs.

It has been frequently commented that the recent and rapid integration of the East Asian economy will provide both good opportunities for reducing poverty. In fact, even some less-advanced developing countries and areas such as Cambodia, Lao People�s Democratic Republic and inland China are expanding their opportunities to export agricultural products to advanced developing countries and international markets via trade liberalization and transportation network development in the region. The liberalization of capital movements has also enhanced the investment by international food processing and supermarket companies in such developing countries; and this has promoted the production of high-value agricultural commodities and created rural jobs. The shift toward such high-value agriculture will result in a deeper integration between firm and farm sectors and will enable the structural change of traditional agriculture.

Attention should also be paid to the reality that economic integration does not always provide positive effects for every region and social class. It has been often said that - especially in the marginal areas where crop diversification and market access are difficult due to insufficient infrastructure - economic integration has worsened poverty and even reproduced poverty due to failure to capitalize on educational opportunities.

The Japan International Research Center for Agricultural Sciences (JIRCAS) has been implementing a four-year collaborative research project "Impact Analyses of Economic Integration on Agriculture and Policy Proposals toward Poverty Alleviation in Rural East Asia (ECOIN)" since April 2006, under a close collaboration with UNESCAP-CAPSA and in association with the National Agricultural Research Centres in the selected Asian countries. The project aims at clarifying the impacts of economic integration on East Asian (South-East Asia and China) agriculture, especially on diversified and high-value agriculture, and diversified income resources and employment opportunities through farming-marketing integration, thereby determining ways to take advantage of economic integration for poverty reduction and to minimize negative influences. The project focuses not only on the impacts of economic integration but also on measures for supporting the poor. The results of the study will be presented to policymakers as practical information for poverty alleviation.

In the middle of the project period, a seminar with counterpart researchers from the major participating countries (China, Indonesia, Lao PDR and Thailand) of the project was organized on 27 June 2008 in Bangkok, Thailand. The objectives of the seminar were: (i) to discuss the results of the country studies carried out during 2006 to 2007; (ii) review the work plan for 2008 to 2009; and (iii) discuss other future plans and ideas. This article describes the current progress of the ECOIN project by providing a summary of papers presented at the seminar.

Highlights of the country studies
The seminar participants were invited to present papers highlighting the output of their country studies during 2006 and 2007. In this section, the major findings of country studies are presented.

China
Dr. Kang Yunhai, Director, Economic Research Institute, Yunnan Academy of Social Science, China presented a paper titled "Influence Analysis of Agricultural Trade Liberalization on Crop Intensity, Forest Conservation and Poverty Alleviation". The border areas between China (Yunnan), Lao PDR and Viet Nam have rich natural resources which are typified by high biodiversity in mountainous areas. However, the level of economic development is relatively low compared to the coastal area of China. This is partly due to lack of investment in the area. Recently, with a rapid development of infrastructure (railways, waterways and highways), accessibility to the area was much improved, and trade liberalization, which mainly resulted from economic treaties such as the China - ASEAN FTA, promoted agro-product trade in the region. Meanwhile, liberalization of capital and increasing demand for high value agro-products further intensified the production of these commodities in the region. As a consequence of these changes, serious environmental problems like deforestation of rare tropical forests have emerged. In order to find an alternative development strategy for this area, comprehensive research on the relationships of trade transformation, cropping intensity, forest conservation and poverty alleviation are being conducted in Yunnan Province.

Shangyong Township in Xishuangbanna Prefecture, a border town with Lao PDR, and Hekou County in the south-east of Yunnan Province located at the intersection of the Red River and the Nanxi River, were selected as study sites. In Shangyong, the study concluded that the free trade of farm products had little impact on local agricultural development and villagers' income generation. Most of the families in the study site have their relatives beyond the border and social interaction and commodity exchange with Lao people are very common among local people in Shangyong. However, the variety, amount and value of the exchanged commodities, especially farm products, are quite limited. The reasons are: firstly, the similarity of farm products on both sides of the border; secondly, the northern provinces of Lao PDR that are close to the study site are less-developed areas with low-level consumption; and thirdly, Lao authorities practise strict control over the import of farm products.

The Hekou region has a national port and four provincial ports. In Hekou, the main agro-products are banana, rubber, fruit, aniseed, etc. Border trade is a very common practice in the study area. However, the amount of agro-products that is exported from this Chinese region is not very large. Major export commodities produced by the local villagers are rice, seeds, potatoes and fruit. Local production of banana and rubber is mainly sold to domestic markets. Vegetables for export mainly come from the production areas outside the provinces. Therefore, free trade of agro-products would have little effect on planting structure and land use by the local farmers. On the other hand, it is suggested that free trade of agro-products has the potential to affect Hekou's agriculture. Firstly, it has led to a lot of trade in general, and has attracted the investment of enterprises at home and abroad. Such phenomena would promote the scale of agro-products and could increase farmers' incomes in the future. Secondly, free trade of agro-products would promote the shift of the surplus labour from less competitive products to other products. Thirdly, it has played an important role in environmental protection. It has attracted many farmers in remote areas to urban areas in search of employment opportunities. As a result, there has been less deforestation in the countryside.

Indonesia
Indonesia is the largest agricultural economy in South-East Asia in terms of its agricultural GDP, farm land area and agricultural population. The country has abundant natural and human resources and there is good potential for Indonesia to develop its agricultural sector by regional economic integration. However, compared to other ASEAN countries and China, economic integration in Indonesia is still in early stages. This is shown by a relatively low export value and foreign direct investment. Based on these backgrounds, the author and Dr. Henny Mayrowani, Researcher, Indonesian Center for Agriculture Socio Economic and Policy Studies, Indonesia, presented a paper titled "Economic Integration and Poverty in Indonesia". The major goals of the studies described in this paper, are to identify the impacts of economic integration on rural poor, and to propose policy options to alleviate rural poverty in Indonesia. To achieve these goals, three activities have been implemented during the project period. The tentative outputs of the studies are outlined below.

  1. Primary and statistical data analysis to identify the competitiveness of agricultural commodities and their importance in rural households. The Policy Analysis Matrix (PAM) method was applied to identify the comparative advantage of local agricultural production. Most of the domestic resource cost ratio (DRCR) of the target commodities (cassava, shallot, tomato and carrot) was below 1, indicating a comparative advantage in their production. However, the extent of profitability varied between the production areas. For example, in the case study of shallot production in Java, th revenue was much higher in the lowland area than the highland in spite of almost the same values of DRCR, which indicated that the other factors such as the bland image of the production area worked as a driving factor of the crop price and revenue. In the case of cassava in Lampung, the study determined that technical and financial support by emerging processing companies, including the foreign processors, contributed to the profitability of local cassava production.
  2. Rural household survey to determine the household economic conditions.
    A bench mark census survey was carried out in the study village in Majalengka, West Java. All the 369 households in two hamlets were interviewed to determine the current conditions of household economy and agriculture. One of the factors examined in the survey, was 'diversified income source', which was used as an indicator of the impact of economic integration. The results of an attitude survey of farm households showed that non-farm income plays an important role in the household economy, occupying nearly 70 per cent of household income. On the other hand, farmers that rely on rice and vegetable production as a major source of income still have higher expectations of developing their current agricultural production and getting more income from agriculture. These farmers showed a strong interest in technological improvements such as the application of new varieties as a means to develop their farm economies.
  3. Identification of key factors of poverty alleviation through agricultural diversification and their policy implications. Organic farming was used as a case study. The study investigated its potential to contribute to rural poverty alleviation in the context of regional economic integration. The results of interviews and questionnaire surveys on organic vegetable farms and certification agencies showed that organic vegetable farms can enjoy better profit than conventional farms, although this higher profit is very marginal. Labour absorption of organic farming is very large, which indicates a positive impact on poverty alleviation by creating wider job opportunities. The high cost of organic certification would be a serious problem if the current voluntary organic standard in Indonesia becomes compulsory. Consumers' preferences indicate that organic products in Indonesia can meet the quality standard required by the international market. It was concluded that there would be sufficient potential to develop organic farming in Indonesia by promoting export and import substitutes.

Lao People's Democratic Republic and Thailand
Dr. Pornsiri Suebpongsang, Lecturer, Department of Agricultural Economics, Faculty of Agriculture, Chiang Mai University, Thailand, presented a paper titled "Impact Analysis of Economic Integration on Agriculture and Policy Proposals toward Poverty Alleviation in Rural East Asia: The Case of Northern Thailand". The study was conducted in Chiang Mai Province, North Thailand. Under an FTA that Thailand signed with China, which took effect in October 2003, the tariffs of 116 items of fruit and vegetables between Thailand and China were eliminated. Since then trade between these two countries has increased dramatically. China increased its fruit (especially pear, apple, grape and orange) and vegetable (mainly garlic, onion, broccoli, carrot and Chinese radish) export to Thailand. On the other hand, Thailand increased its fruit (mainly fresh and dry longan) and vegetable (mainly cassava) export to China. The study concluded that the case of fruit and vegetable farmers in Northern Thailand was a good example of losers under an FTA. For example, the expansion of garlic imports, especially from China decreased the price of Thai garlic significantly, both at wholesale and farm-gate prices. With the low cost of production in China, Chinese garlic definitely has competitive advantages over Thai garlic. Despite a fluctuating and decreasing trend in the price of Thai garlic, and a government compensation programme to encourage farmers to switch from garlic to ornamental trees, some garlic farmers have not switched to other crops, due to their expertise in garlic planting and the difficulty in adjusting their planting techniques.

Figure 1. Impacts of economic integration

Note: (+) positive impacts observed, (-) negative impacts observed.

Dr. Nongluck Suphanchaimat, Associate Professor, Department of Agricultural Economics, Faculty of Agriculture, Khon Kaen University, Thailand and Mr. Khonesavanh Vongxay, Deputy Director, Huayson-Huaysua Agricultural Development and Service Center, Department of Agriculture and Forestry, Ministry of Agricultural and Forestry, Vientiane, Lao PDR, presented two papers, both of which focused on the impacts of expanding feed corn production in Lao PDR, by private feed companies in Thailand. The studies analysed potential impacts of economic integration on agriculture, especially in North-East Thailand and Lao PDR. Since 2003, direct investment from Thailand to Lao PDR has rapidly increased to about 14.7 million baht in 2007, a seven-fold increase during 2003 to 2007. Major commodities that received investments were sugar cane, feed corn, eucalyptus and canned food. The results of interview surveys indicated that feed corn has been fully adopted in Xayabury Province, North-Western Lao PDR, and that the quality of the product improved. An immediate impact of economic integration was increased employment and income of Lao farmers. On the other hand, half of the interviewed farmers in Loei Province, North-East Thailand switched from feed corn to rubber, eucalyptus and fruit trees. The remaining farmers received a high price for feed corn due to better access to markets. It seemed that both Lao and Thai farmers received positive impacts from the development of feed corn production in Lao PDR. Some farmers in Lao PDR lost their land due to debts but presently they can easily seek new land thanks to abundant land resources. It was suggested that problems might arise in the near future when land resources became scarce and intensified land use causes soil depletion.

Conclusions of the seminar and the future plans of the project
In the presentations at the seminar, we could observe both positive and negative impacts that resulted from regional economic integration (Figure 1). Economic integration will force farmers to compete with imported commodities and if it works effectively, the farmers who produce products with higher competitiveness may enjoy better profits from expanded export opportunities. This case was typically observed in the case study of feed corn production in Lao PDR. On the other hand, the farmers who produce products with less competitiveness should switch their products to the others with higher competitiveness and profits, as was observed in the case of garlic farmers in North Thailand. However, as clarified by the country studies, the actual cases are more complicated and there is no one-fit-for-all solution. As reported in the case study of China, in spite of the booming border trade, if the local agricultural production could not meet demand from its export destinations, then free trade, while of benefit to the country as a whole, may not be of much benefit in the border areas, which are often disadvantaged areas. The liberalization of foreign investment brings not only money but also opportunities for changes in marketing practices. The latter are not necessarily preferable for local farmers. This was observed in the case of cassava in Indonesia. It is important for the policy planners to consider the current social and economic situation and implement agricultural policies that benefit from regional economic integration.

The project will be completed in March 2010, and near the end of the project period, a regional workshop will be held to review the overall outputs of the country studies and to discuss their relevance for pro-poor policy formulation in participating countries. As a conclusion of the recent seminar in Bangkok, each country study team was requested to analyse deeply how the findings can be effectively used for poverty alleviation to achieve the final goal of the project, namely, to alleviate rural poverty by using economic integration as an opportunity for improving the welfare of local farmers. The proceedings of the seminar will be published as a JIRCAS Working Paper by the end of this year.

(References available upon request)