Module 6_Agriculture

Transformation and Rural

Development

PREPARED BY: MRS. CATHERINE U. MALIG, MBA

REFERENCE: ECONOMIC DEVELOPMENT BY: M.
TODARO AND SMITH

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The Imperative of Agricultural Progress and Rural
Development
The heavy emphasis in the past on rapid industrialization
may have been misplaced
Agricultural development is now seen as an important
part of any development strategy
Three complementary elements of an agriculture – and
employment-based strategy
◦ Accelerated output growth
◦ Rising domestic demand for agricultural output
◦ Non-agricultural rural labor -intensive rural development activities
that are supported by the farming community
The Imperative of Agricultural Progress and Rural
Development
The heavy emphasis in the past on rapid industrialization
may have been misplaced
Agricultural development is now seen as an important
part of any development strategy
Three complementary elements of an agriculture – and
employment-based strategy
◦ Accelerated output growth
◦ Rising domestic demand for agricultural output
◦ Non-agricultural rural labor -intensive rural development activities
that are supported by the farming community
Agricultural Growth: Past Progress and Current Challenges

Although agriculture employs the

majority of the developing country
labor force, it accounts for a much
lower share of total output
Agricultural production is rising but
unevenly
Green revolution The boost in grain production associated
with the scientific discovery of new hybrid seed varieties
of wheat, rice, and corn that have resulted in high farm
yields in many developing countries.
As Countries Develop, the Shares of GDP and Labor in
Agriculture Tend to Decline, but with Many Idiosyncrasies
Agricultural Growth: Past Progress and Current Challenges (cont’d)

Malnutrition and famine inspire calls for a new

green revolution focused on Africa.
Food price spike of 2007-2008 partly due to short
term factors but long term factors may herald return
to persistently higher food prices in the years ahead.
New upward spike of prices by early 2011
The presence of market failures - and poverty
alleviation goals – create need for constructive
government role in agriculture
Green revolution: The boost
in grain production associated with the
scientific discovery of new hybrid seed
varieties of wheat, rice, and corn that have
resulted in high farm yields in many
developing countries.

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Roles for Government in Agricultural
Development
Environmental externalities
Agricultural research and extension services
Economies of scale in marketing
Informational asymmetries in product quality
Providing institutions and infrastructure
Ensure shared growth in agriculture sector
Addressing poverty traps
The Structure of Agrarian Systems in
the Developing World
•Three systems of agriculture
•Agriculture based countries, often subsistence, but agriculture
makes up large part of growth
•Transforming countries, most of world’s rural people, large %
of poverty incidence found there, low contribution of
agriculture to growth
•Urbanized countries, half or more even of the poor found in
urban areas
•The trend is from agriculture-based, to transforming, to
urbanized economies as illustrated with the cases of India,
China, Indonesia, and Brazil in Fig. 9.3
 The Structure of Agrarian Systems in
the Developing World
•Three systems of agriculture
1. agriculture is still a major source of economic growth—although mainly because
agriculture makes up such a large share of GDP. The World Bank estimates that
agriculture accounts for some 32% of GDP growth on average in these countries, in
which 417 million people live.
2. Most of the world’s rural people—some 2.2 billion—live in what the report categorizes
as transforming countries, in which the share of the poor who are rural is very high
(almost 80% on average) but agriculture now contributes only a small share to GDP
growth (7% on average). Most of the population of South and East Asia, North Africa, and
the Middle East lives in these countries, along with some outliers such as Guatemala.

3. in what the report calls urbanized countries, rural-urban migration has reached the
point at which nearly half, or more, of the poor are found in the cities, and agriculture
tends to contribute even less to output growth. The urbanized countries are largely found
in Latin America and the Caribbean, along with developing eastern Europe and Central
Asia, and contain about 255 million rural dwellers.
Land Productivity in Developed and Developing Countries
The Structure of Agrarian Systems in the Developing World (cont’d)

Peasant Agriculture in Latin America, Asia,

and Africa
Latin America and Asia: similarities and
differences
◦ The Latifundio–Minifundio dualistic pattern in
Latin America
◦ The fragmented and heavily congested dwarf
land holdings in Asia
◦ Africa: extensive cultivation patterns
Distribution of Farms and Farmland by Operational Farm Size and Land
Tenure Status In Selected Developing Countries in Asia and Latin America
Changes in Farm Size and Land Distribution
 The Structure of Agrarian Systems in the Developing World
Transforming Economies: Problems of Fragmentation and
Subdivision of Peasant Land in Asia
◦Impact of colonial rule in strengthening land
tenure systems of private property rights and the
consequent rise of moneylenders
◦Contemporary landlordism in India and Pakistan
involves absentee landlordism and persistence of
sharecroppers and tenant farmers
◦Rapid population growth resulted in more
fragmentation and peasant impoverishment
The Structure of Agrarian Systems in the Developing World (cont’d)

Agrarian Patterns in Latin America: Progress and

Remaining Poverty Challenges
◦ Apart from latifundios (large holdings) and minifundios
(small farms) much production occurs on family farms and
medium sized farms.
◦ Latifundios (traditional ones, especially) are relatively
inefficient; landlords/owners are sometimes less focused
on the business of farming; and large farms typically entail
higher transaction costs
◦ Overall the agricultural sector seems to be doing well in
many Latin American countries. Two prominent examples:
Chile (diversification), and Brazil (biofuels)
◦ Extreme rural inequalities still persist.
 The Structure of Agrarian Systems in the Developing World
(cont’d)

Subsistence Agriculture and Extensive Cultivation in

Africa
◦ Low productivity due to lack of technology
◦ Shifting Cultivation
◦ Seasonal demand for labor depending on rainy season
◦ High dependence on unimproved seeds sown on
unfertilized, rain-fed fields
◦ Relatively high fraction of underutilized land
◦ High concern about climate change impact
◦ Need for an African new green revolution, there are hopeful
signs that it is getting underway
 The Important Role of Women

Women provide 60% to 80% of agricultural

labor in Africa and Asia, and 40% in Latin
America
Women work longer hours than men
Government assistance programs tend to
reach men, not women
Expansion of Modern Inputs in the World’s Developing Regions
Three Broad stages in the Evolution of Agricultural
Production
1. The pure, low-productivity, mostly subsistence-level
peasant farm, still prevalent in Africa.
2. The second stage is what might be called diversified or
mixed family agriculture, where a small part of the produce
is grown for consumption and a significant part for sale to
the commercial sector, as in much of Asia.
3. The third stage represents the modern farm, exclusively
engaged in high-productivity specialized agriculture geared
to the commercial market, as in developed countries and
often found in the highly urbanized developing countries
 The Microeconomics of Farmer Behavior and Agricultural Development
Subsistence farming: risk aversion, uncertainty, and survival
(insights)
◦ Traditional neoclassical model of profit maximization with
certainty is not adequate
◦ Price, weather, and other uncertainty, along with limited
access to credit and insurance (and even savings vehicles),
largely explains the extent of risk-averse behaviors
observed
◦ Risk-averse subsistence farmers often (not irrationally) can
prefer technologies that combine low mean-per-hectare
with low variance to alternative high yielding but higher risk
technologies
Efforts to minimize risk and remove commercial and
institutional obstacles to small farmer innovation are
necessary
Small-Farmer Attitudes toward Risk: Why It Is Sometimes Rational to
Resist Innovation and Change
Crop Yield Probability Densities of Two Different Farming Techniques
The Microeconomics of Farmer Behavior and Agricultural Development
(cont’d)

Issues in sharecropping: a long debate

◦ Intrinsically Inefficient due to poor incentives (Marshall)
◦ Monitoring approach (Cheung)
◦ Compromise between two types of risk (Stiglitz, others)
◦ Screening argument (if high ability then take pure rental)
◦ Empirical evidence for inefficiency from Ali Shaban
(comparing same farmer, controlling for soil)
◦ Giving sharecroppers a larger share of the produce and
security of tenure on land can increase efficiency
Issues in interlocking factor markets
The Microeconomics of Farmer Behavior and Agricultural Development
(cont’d)

Issues in interlocking factor markets

1. Landlord provide abundant sources of monopoly
and monopsony power.
2. the availability of a perfectly elastic supply of
tenants and the ability of the landlord to subdivide
his land into as many plots as he chooses the
peasant is forced to his reservation utility level, or
next-best income opportunity.
3. peasants are sometimes prevented from learning
about some of the alternatives available to them.
Incentives under Sharecropping
The Microeconomics of Farmer Behavior and Agricultural Development
(cont’d)

The Transition to Mixed and Diversified

Farming
From Divergence to Specialization: Modern
Commercial Farming
Diversified (mixed) farming The production of
both staple crops and cash crops and simple
animal husbandry typical of the first stage in
the transition from subsistence to specialized
farming
The Microeconomics of Farmer Behavior and Agricultural Development
(cont’d)

From Divergence to Specialization: Modern

Commercial Farming
Specialized farming The final and most
advanced stage of the evolution of
agricultural production in which farm output
is produced wholly for the market.
Core Requirements of a Strategy of Agricultural and
Rural Development

Improving Small-Scale Agriculture

◦Technology and innovation
◦Institutional and pricing policies:
Providing necessary economic
incentives
◦Adapting to new opportunities and
New Constraints
Core Requirements of a Strategy of Agricultural and
Rural Development

Conditions for Rural Development

◦Land Reform
◦Supportive policies
◦Integrated Development Objectives
Core Requirements of a Strategy of Agricultural and
Rural Development

Conditions for Rural Development

◦Land Reform

Land reform A deliberate attempt to reorganize

and transform agrarian systems with the
intention of fostering a more equal distribution
of agricultural incomes and facilitating rural
development.
Core Requirements of a Strategy of Agricultural and
Rural Development

Conditions for Rural Development

◦Supportive policies
Conclusion 2: The full benefits of small-scale
agricultural development cannot be realized
unless government support systems are created
that provide the necessary incentives, economic
opportunities, and access to needed credit and
inputs to enable small cultivators to expand
their output and raise their productivity.
Core Requirements of a Strategy of Agricultural and
Rural Development
Conditions for Rural Development
◦ Integrated Development Objectives

Conclusion 3: Rural development, though dependent primarily on small-

farmer agricultural progress, implies much more. It encompasses (a) efforts
to raise both farm and nonfarm rural real incomes through job creation,
rural industrialization, and other nonfarm opportunities and the increased
provision of education, health and nutrition, housing, and a variety of
related social and welfare services; (b) a decreasing inequality in the
distribution of rural incomes and a lessening of urbanrural imbalances in
incomes and economic opportunities; (c) successful attention to the need
for environmental sustainability—limiting the extension of farmland into
remaining forests and other fragile areas, promoting conservation, and
preventing the harmful misuse of agrochemicals and other inputs; and (d)
the capacity of the rural sector to sustain and accelerate the pace of these
improvements over time.
TERMS TO REMEMBER

Agrarian system The pattern of land distribution,

ownership, and management
and also the social and institutional structure of the agrarian
economy

Latifundio A very large landholding found particularly in the

Latin American agrarian system, capable of providing
employment for more than 12 people, owned by a small
number of landlords, and comprising a disproportionate share
of total agricultural land.

Minifundio A landholding found particularly in the Latin

American agrarian system considered too small to provide
adequate employment for a single family.

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TERMS TO REMEMBER

Family farm A farm plot owned and operated by a single

household.

Medium-size farm A farm employing up to 12 workers.

Transaction costs Costs of doing business related to gathering

information, monitoring, establishing reliable suppliers,
formulating contracts, obtaining credit, etc.

Landlord The proprietor of a freehold interest in land with

rights to lease out to tenants in return for some form of
compensation for the use of the land.

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 Concepts for Review
Agrarian systems Minifundio
Cash crops Mixed farming
Diversified farming Moneylender
Family farms Scale-neutral
Green revolution Sharecropper
Integrated rural development Shifting cultivation

Interlocking factor markets

Specialized farming
Staple foods
Landlord
Subsistence farming
Land reform
Tenant farmer
Latifundio
Transactions costs
Medium-sized farms