SEMESTER TWO NOTES

RURAL AND AGRICULTURE DEVELOPMENT

UNIT 1

1. DEFINITION OF RURAL DEVELOPMENT

The definition of “rural” differs by country, though it is usually used in contrast to “urban”. For
instance, this word is defined based on population density in Japan, indicating an area other than
“an area with over 5,000 people, which consists of each district with a population density of over
4,000 per square kilometer”. However, we cannot simply apply this definition to other countries.
Moreover, due to the fact that the concept of “rural” varies from Asia to Africa, it is difficult to
define it uniformly. Therefore, the use of “rural” (including fishing and mountain villages) as a
relative concept to “urban”, based on social, economic, and natural conditions in each country
may be most adequate. The term could also be used to describe areas where a majority of the
residents are engaged in agriculture in a broad sense (including livestock farming, forestry, and
fisheries).

The final beneficiaries of development assistance are local people in both rural and urban areas.
However, their livelihoods are based on significantly different social, economic, and natural
environments. Most rural residents in many developing countries (especially in the least
developed countries, or LLDC) are engaged in and depend on local agriculture, forestry, and
fishery resources to make a living. If the local people are final beneficiaries of development
assistance, the aim of rural development can be defined as the improvement of sustainable
livelihoods (especially impoverished groups), with careful attention paid to local characteristics.

By comparison with development, rural development is a much newer term. But how does it
relate to ‘development’ and some of the ideas discussed above? Is it an alternative to existing
theories of development or does it simply refer to development carried out in rural areas? Why
does it warrant study as an independent discipline in its own right? These are some of the
questions that we shall be addressing in the remainder of this unit. However, before we go
further let us consider what is meant by the term ‘rural’.

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1.1. Defining ‘rural’

Most people probably have a fairly clear idea what is meant by ‘rural’. However, the definition
of rural is not as clear-cut as one might think.

Probably the first thing that springs to mind is the contrast with urban areas and the image of
open spaces, either in a relatively natural state or cultivated or grazed by livestock. But what
about rural towns? And what about those areas on the edge of towns and cities where the space
between buildings grows larger and where small plots of cultivated land may begin to appear
between industrial estates and other features that we closely associate with the urban concept. In
short, there is no precise distinction between rural and urban, although where countries do wish
to identify a cut-off point between one and the other, it typically relates to the population size of
human settlements – towns, villages etc. Official definitions often refer to settlements with less
than 5000 people as being rural, whilst those with more than 5000 are considered urban.
However, this threshold varies from one country to another, due in part to differences in the
overall population density.

In the context of this module rural is defined fairly broadly. It relates primarily to areas that have
a relatively low population density compared to cities, areas where agriculture and related
activities usually dominate the landscape and economy, and places where transport and
communications need to cover relatively large distances making travel and service provision
relatively difficult and costly. However, our definition also includes the towns (as opposed to
cities) that are located in these areas and which are linked to them culturally and economically by
acting as a focal point for people living in the surrounding areas – places where they can meet,
exchange goods and services, and find transport to larger urban centres. Finally, we are also
interested to some extent in the peri-urban areas – the areas that lie on the fringes of the urban
environment, including the edge of major cities.

Whilst the challenges facing urban and rural populations in developing countries have much in
common, there are differences. The distinct challenges facing rural communities relate above all
to the problems associated with natural resource-based livelihoods, low population densities, and

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poor communications. These problems are a recurring theme in the examination of different
conditions, challenges and processes in rural development.

1.2. Rural development as policy and as process

Rural development emerged as a distinct focus of policy and research in the 1960s and gained
full momentum in the 1970s, as observers increasingly realised that, whilst economic growth and
industrialisation were important, rural areas and rural development had important and different
roles to play in a country’s development.

According to Harriss (1982), ‗Rural Development has emerged as a distinctive field of policy
and practice and of research in the last decade, and particularly over the eight or nine years since
the inception of the ―new strategy‖ for development planning by the World Bank and UN
agencies. This strategy came to be formulated as a result of the general disenchantment with
previous approaches to development planning at national and sectoral levels, and it is defined by
its concern with equity objectives of various kinds ...

The term ―Rural Development‖ ... refers to a distinct approach to interventions by the state in
the economies of underdeveloped countries, and one which is at once broader and more specific
than ‗agricultural development ‘. It is broader because it entails much more than the
development of agricultural production — for it is in fact a distinct approach to the development
of the economy as a whole. It is more specific in the sense that it focuses (in its rhetoric, and in
principle) particularly on poverty and inequality. Although there is a substantial overlap between
the field of conventional agricultural economics and the concerns of ―Rural Development‖, the
kinds of study required to understand the factors affecting ―Rural Development‖ are not
contained within the discipline of agricultural economics. Not only does ―Rural Development‖
include attention to other aspects of rural economies as well as agriculture, but the analysis of
distributional issues demands an inter-disciplinary approach in which the broader social and
political factors interacting with economic processes are subjected to examination …

The expression rural development may also be used, however, to refer to processes of change in
rural societies, not all of which involve action by governments. In this case, the activity of

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―Rural Development‖ a form of state intervention, must be considered simply as one of the
forces concerned — although it is one which has become of increasing importance. ‘

According to Harriss, rural development can be viewed as either of the following:

· a state-led activity and a focus for development policy

· a broader process of change in rural societies, which may or may not involve state intervention

These are two angles, if you like, from which we can consider rural development. Implicit in the
first of these is the notion of government intervention of one sort or another. Admittedly, policy
can be characterised by non-intervention or a laissez-faire attitude to rural development. The
withdrawal of government from rural development activities can also be considered to be a
policy. However, in this unit when we talk of rural development as policy we are referring to a
policy of active state engagement with the rural development process.

1.3. An area-based approach

In relation to rural development policy, Harriss identifies a number of important characteristics,

perhaps the most obvious of which is that it is an area-based approach to development. In other
words, rural development policy targets particular geographical areas (rural areas) rather than
an economic sector (eg agriculture, manufacturing, education) or a particular group of people
(eg small farmers, female- headed households, ethnic minorities) – even though individual
sectors or groups of people may be targeted as part of a broader rural development strategy.

Given that the livelihoods of the majority of the world’s rural population depend, either directly
or indirectly, on the agricultural sector, agriculture is an obvious sector in which to concentrate
efforts to promote growth. Indeed, the promotion of agricultural development and smallholder
agriculture, in particular, has always been a central feature of rural development policy.

1.4. Multi-sectoral

However, rural development is not just about agricultural growth and, whilst agricultural growth
is a very important dimension of rural development, it is not enough on its own to ensure

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economic growth in rural areas. Other sectors or dimensions come into play in the process of
rural growth, such as health, education and economic activities outside the agricultural sector.
Rural development is multisectoral. It embraces a variety of different economic and social
sectors. These are summarised below:

· agriculture and natural resources – crops, livestock, fishing, forestry

· the non-farm sector – services to agriculture (including input supply, marketing, transport,
finance, agricultural processing), rural manufacturing, mining, and other rural services

· rural infrastructure – roads, transport, energy, water

· education

· health

1.5. The primacy of agriculture debate

Despite a multi-sectoral approach, current opinion is divided concerning the relative importance
of different sectors and of agriculture in particular. On the one hand, there is the view that
agricultural development, driven by growth in the small farm sector, is a pre-requisite for the
wider development of the rural economy; that, in the poorest parts of the world, it needs to be the
driving force in efforts to reduce poverty; and that rural development policies should focus on
making small farmers more productive through improved access to technology and markets.

A contrasting view is that excessive focus on agriculture fails to take account of the complexity
and increasing diversity of rural livelihoods, and the importance of income-generating activities
located outside agriculture. Whilst not denying the role of agriculture in the development
process, this view gives agriculture, and particularly small-scale agriculture, less emphasis and
calls for policies that are more tailored to individual circumstances within a very varied rural
environment.

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A third view plays down the importance of agriculture in local development processes and
argues that while access to cheap food is important, this may be best obtained from imports or
from large-scale agriculture rather than small-scale agriculture.

A third view plays down the importance of agriculture in local development processes and
argues that while access to cheap food is important, this may be best obtained from imports or
from large-scale agriculture rather than small-scale agriculture.

Superimposed upon this debate are questions about global food security and whether we are now
moving into an era of food shortages. The optimism of recent decades is giving way to greater
pessimism about the ability of supply to keep pace with demand, especially given the
uncertainties surrounding climate change. We return to these issues later, but for now it is worth
noting that this has reinvigorated the debate about the role of agriculture in development.

1.6. The environment and sustainability

Another central concern in rural development is environmental sustainability. Although Harriss’

definition does not make any mention of the environment, the subject is clearly of particular
importance in rural development, since so much economic activity, notably agriculture, is both
dependent on natural resources, as well as having a very direct impact upon them, through for
example deforestation, soil degradation, and loss of biodiversity.

One of the biggest challenges, both now and into the future, relates to climate change. Global
climate change is likely to have a major impact upon the climate and natural resources of rural
areas, affecting both the productivity of rural resources as well as the livelihoods of people who
are dependent upon them. Agriculture is also a major contributor to the greenhouse gases that
cause climate change and may well be affected by future efforts to reduce carbon emissions.

1.7. Rural poverty

Most approaches to rural development, at least in terms of stated goals, have had, and continue to
have a strong poverty focus. Many people, including Harriss in 1982, viewed this concern as a
distinctive feature of the study and pursuit of rural development, setting it apart from traditional

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approaches to development – the latter were mostly concerned with macroeconomic growth and
how to stimulate output in the productive sectors of the economy; they assumed that poverty
would fall automatically once these issues had been addressed. Interventions in rural
development have often focused more directly on the problem of poverty – eg by addressing the
basic needs of the poor in terms of food, health and education etc and looking to improve the
productivity of the activities that the poor themselves are engaged in.

The attention given to poverty in the field of rural development has much to do with the high
prevalence of poverty in rural areas. Most of the world’s poor live in rural areas and it is in the
rural areas that poverty and associated deprivations are typically at their most extreme. However,
the world, and poverty itself, is becoming increasingly urbanised. Indeed, the problem of urban
poverty is now high on the international development agenda, so it would be wrong to say that
poverty concerns are exclusive to the field of rural development. The Millennium Development
Goal objective of halving the number of people living in poverty by 2015 highlights the
mainstreaming of poverty as a focus of policy.

Nevertheless, the incidence and severity of poverty will for some time continue to be higher in
rural areas as compared with urban areas, so that even though the number of urban people in the
world overtook the number of rural people sometime in 2010, the number of poor rural people
remained higher than the number of poor urban people (IFAD 2010). Furthermore, many of the
urban poor originate from, and retain close links with, rural areas; and the ranks of the urban
poor are often swelled by migration that is precipitated by a lack of opportunity in rural areas.
What happens in rural areas is therefore important both for both rural and urban poverty.

1.8. Gender

Gender issues feature prominently in the field of rural development. Women are often the
poorest and most vulnerable members of the rural community and female children are often
subject to greater neglect than their male siblings. Like poverty, gender concerns are not
exclusive to rural development; however, gender-related poverty is often hardest to tackle in
rural areas. Firstly, the cultural norms governing the division of labour and resources between
men and women (which often disadvantage women) are usually more deeply entrenched in rural

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areas. Secondly, the wider difficulties of rural transport and communications keep women
isolated from the support that they might get from each other or outside agencies were they to
live in a town or city.

1.9. Multi-dimensional and interdisciplinary

The natural environment supplies one set of factors affecting agrarian systems – of more
immediate and direct relevance than they are in the case of industrial societies; and these and the
way in which they work are intimately related to the technologies employed by people in making
use of natural resources.

Demographic factors, the density of population and the trends of population growth are also
likely to affect these relationships. But an analysis which took into account only these
environmental, technological and demographic processes would be seriously deficient, for the
economics of farming and of other production activities and the way in which these are affected
by markets and by the connections between the rural economy and the rest of the national
economy, or with world markets, must also be included. We must also ask how these factors are
affected by the social structures of rural producers and by their values or their ‘culture’.
Satisfactory analyses of processes of change in rural societies have somehow to embrace all of
these issues. (Harriss (1982) pp. 16—17.)

1.10. The difference between rural development and other similar concepts

Agricultural Development:

“Agricultural Development” mainly aims at increasing agricultural products such as crops,

livestock, fish and etc. Human being, land and capital are simply regarded as production goods
and means. On the other hand, “Rural Development” mainly targets on people and institutions.
Rural development includes agricultural development activities, however it is one of the means
of economic revitalization for active farmers and targeted rural villages.

Regional Development:

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“Regional” has a wide meaning to describe “area” (i.e. a certain area in country) or “region” (i.e.
continent of countries). The Rural Planning Association, for example, considers regional
development as a regional plan including rural and urban development.

2. RURAL REGIONS AND DEVELOPMENT

Much of the conceptual work on rural development has been informed or shaped by the theory of
the rural–urban continuum (Newby 1980). This theory was popular in the 1960s, and continues
to influence in many ways rural development theory, policy and practice today. The rural–urban
continuum thesis assumes that there are geographic differences in values, attitudes and social
relationships that lead to differences in the quality of life between rural and urban regions. These
differences are alleged to be due largely to the lower levels of population density and distance
from large cities.

This rural–urban continuum thesis was most often rooted in a broader social theory referred to as
modernization theory (Long 1987). Modernization theory made several key propositions about
rural development. First, it assumed that development is a linear process and is essentially
progressive. In other words, there is a single path of development that rural regions must follow
in order to achieve development. In addition, the assumption was that as rural areas develop they
look more like urban areas in terms of attitudes, values and behavior.

Second, development is presumed to be gradual and a result of internal, rather than external,
factors. According to the theory, external organizations and institutions have a minimal role in
facilitating development. This does raise the difficult question, however, about the source of
social change in rural areas. Much of the emphasis in the literature has been on the role of
improved technology and communication as a critical component of modernization (Rogers
1995).

Finally, modernization theory holds that as rural regions develop, social classes would become
less important. This issue is important because it means that opportunities for social and
economic mobility improve for rural residents as these class distinctions diminish. In addition,
these economic changes result in increased democracy and civil rights in rural regions.

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In direct opposition to the modernization thesis is dependency theory. Dependency theorists
argued that rural–urban differences are not due to dissimilarities in values, behavior or social
relationships. Development and underdevelopment are not two stages, but are part of the same
economic process. In other words, urban areas have developed at the expense of rural areas.
Rural areas are often the source of resource extraction and low-cost labor for the larger society.
There is a high level of absentee ownership of key businesses and institutions that often limits
the potential for development. This theory does not assume that rural areas will necessarily
follow the same path of development as urban areas, but instead must reduce their dependency
on external organizations and institutions in order to develop. Change, therefore, results from
breaking the dependency relationships with urban institutions and organizations.

Although modernization and dependency theories provide much different explanations of rural
development, they both tend to focus on the nation-state as the fundamental unit of analysis. For
modernization theorists, rural residents are exposed to urban influences and become more
integrated into the larger society. This integration leads to attitudinal and behavioral, as well as
institutional, change that results in progress. For dependency theorists, the primary dynamic
occurs through the interaction between urban and rural areas within the nation-state.

An alternative to these approaches focuses on the link between rural areas and the global
economy. McMichael (2004, p. xviii) refers to the rise of developmentism on a global scale as
the ‘globalization project’. This concept suggests that post-World War II governments and
multilateral agencies institutionalized development as the principal organizing principle for this
era. A key component of this globalization project has been the tight integration of commodity
markets, the rise of financialization and increasing dominance of large corporations. For
example, global commodity markets now shape the fate of communities based in extractive
industries. Thus, globalization rather than government policy may be the primary determinant of
development in many rural areas. This project has sparked numerous social movements and
counter trends that challenge this principle (McMichael 2010).

In the past, rural areas were often viewed as providing low-cost labor for production (Galston
and Baehler 1995). Today, however, rural regions may not provide as much of a cost advantage
as other regions around the world. As capital and labor have become more mobile, there is

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constant pressure to increase the profit rate among businesses. Increased global integration and
competition, therefore, may be advantageous for some rural areas and disadvantageous for
others. It also means that there is no single path to development and that it is much more
contingent on how local conditions link to the global economy.

Modernization and dependency theories provide polar opposite prescriptions for rural
development strategies. Modernization theory suggests that the more integrated rural regions are
into the broader economic and social systems, the more they are likely to develop. Conversely,
dependency theory implies that the most appropriate strategy for rural areas is to break their
relationship with the broader economic and social systems and become more autonomous.
Globalization theory, however, provides more concrete guidance for rural development policies.
Rural areas are unlikely to be able to break their relationship with the larger economy; nor should
they. Instead, they need to enhance their assets and build on competitive strategies that manage
their relationship with the global economy (Green and Haines 2012). In the following, we briefly
discuss some of the key strategies that help rural regions become more competitive in the global
economy.

3. RURAL DEVELOPMENT STRATEGIES

We now turn to a discussion of some key rural development strategies that have been adopted by
policy makers and practitioners. Most rural communities continue to focus on traditional
economic development strategies, such as industrial recruitment or business expansion and
retention (Sears and Reid 1995). Much of the evidence suggests that these strategies may have
little pay-off in the global context for rural areas. We examine, however, some of the leading
alternative strategies that are being promoted by policy makers and practitioners today. The most
successful strategies tend to focus on identifying competitive niches in markets, building public
policies that help overcome obstacles in rural areas, and involving broad support within the
community. In particular, we look at amenity-based development, entrepreneurship, industrial
clusters and regionalism.

3.1. Amenity-Based Development

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Historically, rural areas have been dependent on industries involved in extracting natural
resources (for example, agriculture, forestry, fishing and mining). These local economies rely on
the production of commodities for external markets as a means of creating jobs and generating
income. A good illustration is forest products industries located in many rural regions. Forest
products are extracted and often processed regionally for external markets. This income not only
supports workers in these industries, but it has a multiplying effect throughout the region.

Natural resources, however, are viewed increasingly in terms of their consumptive rather than
their production value (Marsden et al. 1993). In other words, environmental protection of natural
resources can potentially add more value to the rural communities than extraction of the
resources. Recreation or tourist destinations especially offer the potential for generating
economic opportunities in rural areas (often referred to as use value). The general public may
also place a value on protecting natural amenities for potential use in the future (option value) or
simply to know that such places will continue to exist in the future (existence value). For
example, the public may be willing to use tax dollars to invest in conservation, such as national
parks or wildlife areas, without directly using or benefitting from those investments. This shift in
how natural resources are viewed also provides the potential for increasing non-material benefits
for both residents and non-residents of the region. Strategies focusing on the consumptive
aspects of natural resources tend to be referred to as amenity-based development. This strategy
not only provides new opportunities, it also protects the natural environment that is so critical to
the quality of life in rural communities.

There are several potential relationships between natural amenities and rural development (Green
2001). Probably the most common relationship is that development can lead to the destruction of
natural amenities. Strip mining in Appalachia is an example of how natural amenities can be
destroyed through extracting natural resources in the name of development. The trade-off
between jobs and the environment is most evident in this case. Extracting natural resources in
this manner restricts both short- and long-term development efforts in these communities. In
many instances, it may be impossible to replenish or renew the natural amenities that are
destroyed through the extraction process. It also may limit other economic activities in the region
because complementary forms of economic activity, such as tourism, may not be possible in

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these regions. In addition, strip mining is usually conducted by firms that are not locally owned,
and thus many of the profits are extracted from rural areas.

The opposite relationship between amenities and development, however, is also possible.
Preservation of natural amenities can lead to a lack of development. Restricting any economic
activity sometimes limits the development options for rural residents in nearby areas. This
relationship is frequently cited when proximity to protected areas places limits on how residents
may use their land. In addition, public land devoted to protecting natural resources often takes
land off the tax rolls in a region, which reduces the fiscal capacity of local governments.

In some cases development may be necessary for the conservation and/or preservation of natural
resources. Establishing a conservation easement in a rural area, for example, typically requires
financial resources. Conservation programs can be very costly and many of these costs may be
forced on local communities. Thus, it may be more difficult for a very poor area to conserve its
natural amenities. There is a large body of literature suggesting that the poor are likely to exploit
their natural environment if there are no other opportunities to improve their livelihoods (Cernea
and Schmidt-Soltau 2006). Thus, many conservation programs today understand the need to
provide economic opportunities for rural residents in order to build a successful conservation
program. In this instance, there is a mutual relationship between the environment and jobs.

Amenity-based development provides a more holistic approach than do traditional rural

development strategies by recognizing the integral linkages between the environment and the
economy. In many instances protecting and enhancing environmental quality can be a key to
economic development. It also can be a basis for improved access to health care and education.
Retirement destinations in amenity-rich areas may require investments in improved health care
as a way to attract more retirees. These investments in health care have broader benefits to the
population. Yet, research suggests that social conflicts between local residents and tourists (and
seasonal residents) overgrowth and development is typical in these settings (Green et al. 1996).
Local residents tend to prefer to see more job and income growth, while tourists and seasonal
residents may place a higher priority on environmental quality. These differences may be
difficult to overcome, but some form of consensus may be necessary to overcome the perceived
trade-off between jobs and the environment.

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3.2. Entrepreneurship

Rural areas generally have higher levels of entrepreneurship than do urban areas (Lin et al.
1990). Research on entrepreneurship has emphasized two broad approaches – supply-side and
demand-side perspectives – that explain the differential patterns in rural and urban areas
(Thornton 1999). The supply side is usually characterized by its focus on the importance of the
individual characteristics of entrepreneurs.

Research on the demand side focuses on the role of social and economic context in shaping
entrepreneurship. Much of this research has examined the role of firms and markets in
influencing rates of entrepreneurship. Some of this research looks at how entrepreneurs spin off
from existing firms and are shaped by market opportunities. There is some debate whether new
firms are more likely to be created by large, core firms or small, peripheral firms. Many of the
high-tech establishments tend to be related to large firms and universities, while other
establishments may be more autonomous. Bruno and Tyebjee (1982) suggest other
environmental factors influence entrepreneurship, including access to venture capital, technical
support, skilled labor, restricted regulations, low taxes and access to new markets. There is
considerable debate over the effects of these contextual influences on economic development in
general, and entrepreneurship more specifically (Bartik 1991). The debate in the economic
development literature generally discusses whether employing these as incentives actually
influences firm decision making or simply subsidizes firms (Mokry 1988). For rural areas, the
lack of large firms investing in these regions may provide incentives and market opportunities
for entrepreneurs.

Beyond these political and economic factors, there has been an increasing amount of attention
given to the role social factors might play in entrepreneurship. Much of this work has focused on
racial and ethnic differences in entrepreneur networks (Aldrich et al. 1990; Boyd 1990, 1991).
This research has examined why some racial and ethnic groups have different types of social
networks (in terms of size and density) and the impact this has on the rates of entrepreneurship.

Network resources are often considered as a form of social capital (Putnam 2000). This concept
has been criticized because it has been viewed as implying that social capital can compensate for

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the lack of financial and human capital available to entrepreneurs (Tigges and Green 1994).
Another way to conceptualize the role of social networks, however, is to view them as mediating
influences on access to financial and human capital. Stronger and broader networks may increase
the likelihood that entrepreneurs can access different forms of financial capital markets, as well
as improve their own human capital.

Social networks may be more critical to the success of entrepreneurs in rural than in urban areas.
The smaller population and organizational density makes communication much more difficult.
Rural areas generally have a lower level of specialized service firms to support entrepreneurs.
Access to public and non-profit agencies offering support to businesses is a greater challenge
outside of metropolitan areas as well. Most high-tech start-up firms will locate in urban areas
where they have greater access to professional services and contacts with similar needs. Rural
areas also tend to lack access to venture capital. Venture capital firms tend to locate in urban
settings because they prefer to lend to entrepreneurs in close proximity. Given the structure of
opportunities in urban areas, social networks may be critically important to the community
support for entrepreneurs in rural areas.

3.3. Cluster Development

Many states, regions and municipalities have recently adopted cluster strategies in order to
promote rural development. Clusters refer to closely associated businesses and institutions that
are linked by commonalities and complementarities. Michael Porter (2000) has been one of the
chief architects and proponents of cluster development. According to Porter, clusters are a more
effective strategy than traditional approaches for regions to compete in a global economy. Rather
than viewing each business or industry in competition with one another, clusters cultivate
cooperative arrangements among economic actors in a region. The most famous examples of
cluster development are the high-tech industries in Silicon Valley and the film industry in
Hollywood. Both examples involve many local firms that are intimately tied to one another to
produce a set of products or services.

Clusters are conceptualized as larger than industries and include suppliers of specialized inputs
and services as well. They also may include institutions that provide specialized training and

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technical support, as well as trade associations and other organizations that may include cluster
firms.

The central thesis of the cluster development strategy is that a location’s competitiveness is not
based on the industries, but on how the cluster as a whole competes in the global economy.
Clusters shape innovation and productivity growth through several different means. For example,
clusters will be able to more easily identify common training needs across firms and develop
programs that meet their needs. Similarly, suppliers in a cluster should be able to perceive better
the needs of customers because of their long-term relationships.

Rural regions face some difficult challenges in implementing cluster development strategies, but
these obstacles are not formidable. Distance and density may make it more difficult to coordinate
clusters. For example, job training may be delivered through several different educational
institutions. Fragmentation of local governments also adds hurdles to implanting cluster
strategies. It is difficult to coordinate land use and other policies across numerous local
government entities. Industry associations and organizations can play an important role in
overcoming some of these problems. Rural clusters also may have more difficulty in
transitioning from low-wage employment because many firms are within natural resource
extraction industries.

There are many success stories, however, of rural regions that have employed a cluster strategy.
Limited resources in many rural areas may promote greater collaboration and partnerships across
communities. Because rural areas may have more experience with collaboration, they may have
some key advantages in adopting cluster strategies. Similarly, cluster strategies can generate
other opportunities for rural communities to collaborate on service provision that may bring
additional benefits to rural residents (Korsching et al. 1992).

Clusters can be an important rural development strategy because they provide new opportunities
for high-wage employment, as well as offer more long-term sustainability to communities. In the
context of a global economy, rural clusters can increase productivity, as well as lead to a higher
quality of life. Cluster development builds on local social relationships and offers opportunity for

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indigenous, rather than absentee, ownership. These attributes address many of the weaknesses of
traditional development strategies in rural areas.

3.4. Regionalism

A growing number of policy makers and academics have argued for the need to promote regional
approaches toward rural development (Drabenstott 2005). Regionalism addresses a key problem
facing rural communities: political jurisdictions often do not match the geography of economic,
social and environmental problems. For example, communities may be unable to manage
environmental problems because the source of the problem is located in another jurisdiction.
Similarly, many rural communities have become bedroom communities for larger urban areas.
The evidence suggests that there may be more costs than benefits to this type of development for
communities. Finally, many rural communities are extremely limited by resources in providing a
wide variety of services to their residents. Thus, there is a need for greater coordination and/or
cooperation among communities.

Regionalism assumes that urban and rural areas are intimately linked and policy makers need to
develop policies that promote greater integration (Katz 2000). A minimal amount of coordination
can occur with information exchange or cooperation on a few activities. On a more formal level,
it can involve coordinated regional transportation systems, land use planning and even tax
sharing.

Regionalism can take several other forms (Orfield 1997). In some cases, it may involve a
separate government for the region and/or provisions for taxation at the regional level. Tax base
sharing is an important element because it helps reduce some of the differences in service
delivery and educational funding across a region. Other important policies might include
affordable housing, transportation and land use planning. Providing more affordable housing
options outside central cities helps reduce concentrated poverty and provides housing
opportunities in suburban and rural areas. Regional transportation systems enable workers
throughout the region to have access to good jobs. Land use decisions are usually made by local
jurisdictions without consideration of externalities or impacts on neighboring municipalities.

17
Regional planning can address some of these limitations by insuring that municipalities
throughout a region have a coordinated plan for growth and development (Rusk 1995).

There are several potential benefits of promoting regionalism as a rural development strategy.
First, regionalism can generate economies of scale because resources and efforts are not
duplicated in several jurisdictions. These economies of scale are often realized in the provision
of services, such as health care or social services. Second, it can capture spillover effects across
jurisdictions, and help internalize costs. For example, developing regional land use plans can
work against municipalities limiting undesirable land use and pushing them to neighboring
municipalities. Third, regionalism has the potential for increasing expertise and empowerment.
Through coordination and concentrating resources, rural communities can have more leverage to
address social and economic problems.

There are multiple constraints to implementing regional economic development strategies in

rural areas. Many states allocate resources to localities based on population and/or jobs, which
establishes a competitive system among places. Regionalism may involve some planning and
sharing of resources among multiple communities, which may necessitate the establishment of
new institutions. These institutions usually require a legal status that does not exist in many
states. For example, many states have constitutionally limited government bodies to counties,
cities and villages, and towns. Finally, regional approaches to development in rural areas are
often challenged by a strong sense of community and sense of local pride that makes it difficult
to mobilize residents around multi-community issues. Regional approaches to rural development
do not necessarily mean a loss of community autonomy. There is always, however, the potential
for the loss of meaningful participation as decisions and policies are made at a higher level. This
weakness can be compensated with structured decision making that begins at the grassroots
level.

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UNIT 2: THEORETICAL PERSPECTIVES OF DEVELOPMENT

1. DEFINITION OF DEVELOPMENT

The term “development” has various meanings to different people and can be explained in different
contexts. For example, the development needs of a starving population must be different from those
where there is sufficient nutrition (Matowanyka, 1991). Development has often been confused with
“economic growth as measured solely in terms of annual increases in pre-capita income or gross
national product, regardless of its distribution and the degree of people‟s participation in effective
growth” (Mahmoud, 1991). Seers (1972) asserted that “development means the conditions for
realisation of the human personality. Its evaluation must therefore take into account three linked
criteria: where there has been a reduction in (1) poverty, (2) unemployment, (3) inequality”.

According to Pearson (1992), development involves “An improvement qualitative, quantitative or

both - in the use of available resources”. He also asserts that development does not refer to one
particular perspective on social, political and economic betterment. Instead, it is a hybrid term for a
myriad of strategies adopted for socioeconomic and environment transformation from current states
to desired ones.

2. THE CLASSICAL THEORY OF ECONOMIC STAGNATION

Model

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The classical theory, based on the work of the 19th-century English economist David Ricardo,
Principles of Political Economy and Taxation (1817), was pessimistic about the possibility of
sustained economic growth. For Ricardo, who assumed little continuing technical progress, growth
was limited by land scarcity.

The classical economists – Adam Smith, Thomas R. Malthus, Ricardo, and John Stuart Mill – were
influenced by Newtonian physics. Just as Newton posited that activities in the universe were not
random but subject to some grand design, these men believed that the same natural order determined
prices, rent, and economic affairs.

In the late 18th century, Smith argued that in a competitive economy, with no collusion or monopoly,
each individual, by acting in his or her own interest, promoted the public interest. A producer who
charges more than others will not find buyers, a worker who asks more than the going wage will not
find work, and an employer who pays less than competitors will not find anyone to work. It was as if
an invisible hand were behind the self-interest of capitalists, merchants, landlords, and workers,
directing their actions toward maximum economic growth (Smith 1937, first published 1776). Smith
advocated a laissez-faire (governmental noninterference) and free-trade policy except where labor,
capital, and product markets are monopolistic, a proviso some present-day disciples of Smith
overlook.

The classical model also took into account (1) the use of paper money, (2) the development of
institutions to supply it in appropriate quantities, (3) capital accumulation based on output in excess
of wages, and (4) division of labor (limited primarily by the size of the market). A major tenet of
Ricardo was the law of diminishing returns, referring to successively lower extra outputs from
adding an equal extra input to fixed land. For him, diminishing returns from population growth and a
constant amount of land threatened economic growth. Because Ricardo believed technological
change or improved production techniques could only temporarily check diminishing returns,
increasing capital was seen as the only way of offsetting this long-run threat.

His reasoning took the following path. In the long run, the natural wage is at subsistence – the cost of
perpetuating the labor force (or population, which increases at the same rate). The wage may deviate
but eventually returns to a natural rate at subsistence. On the one hand, if the wage rises, food
production exceeds what is essential for maintaining the population. Extra food means fewer deaths,
and the population increases. More people need food and the average wage falls. Population growth

20
continues to reduce wages until they reach the subsistence level once again. On the other hand, a
wage below subsistence increases deaths and eventually contributes to a labor shortage, which raises
the wage. Population decline increases wages once again to the subsistence level. In both instances,
the tendency is for the wage to return to the natural subsistence rate.

With this iron law of wages, total wages increase in proportion to the labor force. Output increases
with population but, other things being equal, output per worker declines with diminishing returns on
fixed land. Thus, the surplus value (output minus wages) per person declines with increased
population. At the same time, land rents per acre increase with population growth, as land becomes
scarcer relative to other factors.

The only way of offsetting diminishing returns is by accumulating increased capital per person.
However, capitalists require minimum profits and interest payments to maintain or increase capital
stock. Yet because profits and interest per person declines and rents increase with population growth,
there is a diminishing surplus (profits, interest, and rent) available for the capitalists’ accumulation.
Ricardo feared that this declining surplus reduces the inducement to accumulate capital. Labor force
expansion leads to a decline in capital per worker or a decrease in worker productivity and income
per capita. Thus, the Ricardian model indicates eventual economic stagnation or decline.

3. MARX’S HISTORICAL MATERIALISM

Karl Marx’s views were shaped by radical changes in Western Europe: the French Revolution; the
rise of industrial, capitalist production; political and labor revolts; and a growing secular rationalism.
Marx (1818–83) opposed the prevailing philosophy and political economy, especially the views of
utopian socialists and classical economists, in favor of a worldview called historical materialism.

3.1. Theory

Marx wanted to replace the unhistorical approach of the classicists with a historical dialectic.
Marxists consider classical and later orthodox economic analysis as a still photograph, which
describes reality at a certain time. In contrast, the dialectical approach, analogous to a moving
picture, looks at a social phenomenon by examining where it was and is going and its process of
change. History moves from one stage to another, say, from feudalism to capitalism to socialism, on

21
the basis of changes in ruling and oppressed classes and their relationship to each other. Conflict
between the forces of production (the state of science and technology, the organization of production,
and the development of human skills) and the existing relations of production (the appropriation and
distribution of output as well as a society’s way of thinking, its ideology, and worldview) provide the
dynamic movement in the materialist interpretation of history. The interaction between forces and
relations of production shapes politics, law, morality, religion, culture, and ideas.

Accordingly, feudalism is undercut by (1) the migration of serfs to the town; (2) factory competition
with handicraft and manorial production; (3) expanded transport, trade, discovery, and new
international markets on behalf of the new business class; and (4) the accompanying rise of nation-
states. The new class, the proletariat or working class, created by this next stage, capitalism, is the
seed for the destruction of capitalism and the transformation into the next stage, socialism.
Capitalism faces repeated crises because the market, dependent largely on worker consumption,
expands more slowly than productive capacity. Moreover, this unutilized capacity creates, in Marx’s
phrase, a reserve army of the unemployed, a cheap labor source that expands and contracts with the
boom and bust of business cycles. Furthermore, with the growth of monopoly, many small
businesspeople, artisans, and farmers become propertyless workers who no longer have control over
their workplaces. Eventually the proletariat revolts, takes control of capital, and establishes
socialism. In time, socialism is succeeded by communism, and the state withers away.

Marx’s ideas were popularized by his collaborator, Friedrich Engels, especially from 1883 to 1895,
when he finished Marx’s uncompleted manuscripts, interpreted Marxism, and provided its
intellectual and organizational leadership.

From the late 19th century through the first three-quarters of the 20th century, Socialist, Social
Democratic, and Labor parties in Western Europe have tried to introduce socialism through
parliamentary democracy rather than violent revolution. Since the 1970s and 1980s, however, these
parties, some with Marxist origins, have limited their goals to a welfare state, social market
capitalism, or social reform under capitalism.

4. ROSTOW’S STAGES OF ECONOMIC GROWTH

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People existed for centuries with little change in their economic life. When major changes occurred,
as in the last 500 years or so, they often took place abruptly. In The Stages of Economic Growth
(1961), Walter W. Rostow, an eminent economic historian, sets forth a new historical synthesis about
the beginnings of modern economic growth on six continents.

Rostow’s economic stages are (1) the traditional society, (2) the preconditions for takeoff, (3) the
takeoff, (4) the drive to maturity, and (5) the age of high mass consumption

4.1. The traditional society

Rostow has little to say about the concept of traditional society except to indicate that it is based on
attitudes and technology prominent before the turn of the 18th century. The work of Isaac Newton
ushered in change. He formulated the law of gravity and the elements of differential calculus. After
Newton, people widely believed “that the external world was subject to a few knowable laws, and
was systematically capable of productive manipulation” (Rostow 1961:4).

4.2. Preconditions Stage

Rostow’s preconditions stage for sustained industrialization includes radical changes in three
nonindustrial sectors: (1) increased transport investment to enlarge the market and production
specialization; (2) a revolution in agriculture, so that a growing urban population can be fed; and (3)
an expansion of imports, including capital, financed perhaps by exporting some natural resources.
These changes, including increased capital formation, require a political elite interested in economic
development. This interest may be instigated by a nationalist reaction against foreign domination or
the desire to have a higher standard of living.

4.3. Takeoff

Rostow’s central historical stage is the takeoff, a decisive expansion occurring over 20 to 30 years,
which radically transforms a country’s economy and society. During this stage, barriers to steady
growth are finally overcome, while forces making for widespread economic progress dominate the
society, so that growth becomes the normal condition. The takeoff period is a dramatic moment in
history, corresponding to the beginning of the Industrial Revolution in late-18th-century Britain; pre–

23
Civil War railroad and manufacturing development in the United States; the period after the 1848
revolution in Germany; the years just after the 1868 Meiji restoration in Japan; the rapid growth of
the railroad, coal, iron, and heavy engineering industries in the quarter-century before the 1917
Russian Revolution; and a period starting within a decade of India’s independence (1947) and the
communist victory in China (1949).

Rostow indicates that three conditions must be satisfied for takeoff.

1. Net investment as a percentage of net national product (NNP) increases sharply – from 5 percent
or less to over 10 percent. If an investment of 3.5 percent of NNP leads to a growth of 1 percent per
year, then 10.5 percent of NNP is needed for a 3-percent growth (or a 2-percent per-capita increase if
population grows at 1 percent).

2. At least one substantial manufacturing sector grows rapidly. The growth of a leading
manufacturing sector spreads to its input suppliers expanding to meet its increased demand and to its
buyers benefiting from its larger output. In the last three decades of the 1700s, for example, the
cotton textile industry in Britain expanded rapidly because of the use of the spinning jenny, water
frame, and mule in textiles and the increased demand for cotton clothing. The development of textile
manufactures, and their exports, had wide direct and indirect effects on the demand for coal, iron,
machinery, and transport. In the United States, France, Germany, Canada, and Russia, the growth of
the railroad, by widening markets, was a powerful stimulus in the coal, iron, and engineering
industries, which in turn fueled the takeoff.

3. A political, social, and institutional framework quickly emerges to exploit expansion in the modern
sectors. This condition implies mobilizing capital through retained earnings from rapidly expanding
sectors; an improved system to tax high-income groups, especially in agriculture; developing banks
and capital markets; and, in most instances, foreign investment. Furthermore, where state initiative is
lacking, the culture must support a new class of entrepreneurs prepared to take the risk of innovating.

4.4. Drive To Maturity

The drive to maturity, a period of growth that is regular, expected, and self-sustained, follows
takeoff. A labor force that is predominantly urban, increasingly skilled, less individualistic, and more
bureaucratic and looks increasingly to the state to provide economic security characterizes this stage.

24
4.5. Age Of High Mass Consumption

The symbols of this last stage, reached in the United States in the 1920s and in Western Europe in the
1950s, are the automobile, suburbanization, and innumerable durable consumer goods and gadgets.
In Rostow’s view, other societies may choose a welfare state or international military and political
power.

5. VICIOUS CIRCLE THEORY

The vicious circle theory indicates that poverty perpetuates itself in mutually reinforcing vicious
circles on both the supply and demand sides.

5.1. Supply Side

Because incomes are low, consumption cannot be diverted to saving for capital formation. Lack of
capital results in low productivity per person, which perpetuates low levels of income. Thus, the
circle is complete. A country is poor because it was previously too poor to save and invest. Or as
Jeffrey Sachs (2005:56) explains the poverty trap: “Poverty itself [is the] cause of economic
stagnation.”

Japan’s high savings rates during periods of rapid economic growth during the 1950s, 1960s, and
1970s, and the high savings rates of the Asian tigers, Malaysia, and Thailand imply the other side of
the coin of the vicious circle. As countries grow richer, they save more, creating a virtuous circle in
which high savings rates lead to faster growth (Edwards 1995; Economist 1995b:72; World Bank
2003i:218–220).

5.2. Demand Side

Furthermore, because incomes are low, market size (for consumer goods such as shoes, electric
bulbs, and textiles) is too small to encourage potential investors. Lack of investment means low
productivity and continued low income. A country is poor because it was previously too poor to
provide the market to spur investment.

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6. BALANCED VERSUS UNBALANCED GROWTH

A major development debate from the 1940s through the 1960s concerned balanced growth versus
unbalanced growth. Some of the debate was semantic, as the meaning of balance can vary from the
absurd requirement that all sectors grow at the same rate to the more sensible plea that some attention
be given to all major sectors – industry, agriculture, and services. However, absurdities aside, the
discussion raised some important issues. What are the relative merits of strategies of gradualism
versus a big push? Is capital or entrepreneurship the major limitation to growth?

7. BALANCED GROWTH

The synchronized application of capital to a wide range of different industries is called balanced
growth by its advocates. Ragnar Nurkse (1953) considers this strategy the only way of escaping from
the vicious circle of poverty. He does not consider the expansion of exports promising, because the
price elasticity of demand (minus percentage change in quantity demanded divided by percentage
change in price) for the LDCs’ predominantly primary exports is less than one, thus reducing export
earnings with increased volume, other things being equal.

7.1. Big Push Thesis

Those advocating this synchronized application of capital to all major sectors support the big push
thesis, arguing that a strategy of gradualism is doomed to failure. A substantial effort is essential to
overcome the inertia inherent in a stagnant economy. The situation is analogous to a car being stuck
in the snow: It will not move with a gradually increasing push; it needs a big push.

For Paul N. Rosenstein-Rodan (1943:202–211), the factors that contribute to economic growth, such
as demand and investment in infrastructure, do not increase smoothly but are subject to sizable jumps
or indivisibilities. These indivisibilities result from flaws created in the investment market by
external economies, that is, cost advantages rendered free by one producer to another. These benefits
spill over to society as a whole, or to some member of it, rather than to the investor concerned. As an
example, the increased production, decreased average costs, and labor training and experience that
result from additional investment in the steel industry will benefit other industries as well. Greater
output stimulates the demand for iron, coal, and transport. Lower costs may make vehicles and

26
aluminum cheaper. In addition other industries may benefit later by hiring laborers who acquired
industrial skills in the steel mills. Thus, the social profitability of this investment exceeds its private
profitability. Moreover, unless government intervenes, total private investment will be too low.

Indivisibility in infrastructure. For Rosenstein-Rodan, a major indivisibility is in infrastructure, such

as power, transport, and communications. This basic social capital reduces costs to other industries.
To illustrate, the railroad from Kanpur to the Calcutta docks increases the competitiveness of India’s
wool textiles domestically and abroad. However, the investment for the 950-kilometer, Kanpur–
Calcutta rail line is virtually indivisible, in that a line a fraction as long is of little value. Building the
Aswan Dam or the Monterrey–Mexico City telegraph line is subject to similar discontinuities.

Indivisibility in demand. This indivisibility arises from the interdependence of investment decisions;
that is, a prospective investor is uncertain whether the output from his or her investment project will
find a market. Rosenstein-Rodan uses the example of an economy closed to international trade to
illustrate this indivisibility. He assumes that there are numerous subsistence agricultural laborers
whose work adds nothing to total output (that is, the marginal productivity of their labor equals zero).
If 100 of these farm workers were hired in a shoe factory, their wages would increase income.

If the newly employed workers spend all of their additional income on shoes they produce the shoe
factory will find a market and would succeed. In fact, however, they will not spend all of their
additional income on shoes. There is no “easy” solution of creating an additional market in this way.
The risk of not finding a market reduces the incentive to invest, and the shoe factory investment
project will probably be abandoned. (Rosenstein-Rodan 1951:62)

However, instead, let us put 10,000 workers in 100 factories (and farms) that among them will
produce the bulk of consumer goods on which the newly employed workers will spend their wages.
What was not true of the shoe factory is true for the complementary system of 100 enterprises. The
new producers are each others’ customers and create additional markets through increased incomes.
Complementary demand reduces the risk of not finding a market. Reducing interdependent risks
increases the incentive to invest.

7.2. The Murphy–Shleifer–Vishny Model

27
Kevin Murphy, Andrei Shleifer, and Robert Vishny (1989:537–564) analyze an economy in which
world trade is costly – perhaps today, Bolivia, where a majority of the population live on a high
plateau between two north–south Andes mountain chains; landlocked east-central African states
Rwanda, Burundi, Uganda, or Malawi; or isolated islands Papua New Guinea; or, in the 19th century,
the United States, Australia, or Japan. Domestic agriculture or exports may not be sufficient for
industrialization, so these economies need large domestic markets, a la Rosenstein-Rodan. For
increas- ` ing returns from sliding down the initial part of a U-shaped long-run average cost curve
(representing successive plants with more specialized labor and equipment), sales must be high
enough to cover fixed setup costs.

To illustrate, “in the first half of the nineteenth century, the United States greatly surpassed England
in the range of consumer products it manufactured using mass production techniques” (ibid., p. 538).
In contrast to high-quality English artisan products for a quality-conscious upper class, American
producers offered standardized mass-produced utilitarian items, largely bought by relatively well-off
farmers and other middle classes. Colombia’s tobacco export boom failed to lead to widespread
economic development, as incomes went to a few plantation owners who spent on luxury imports.
Later, from 1880 to 1915, however, the boom in coffee exports, grown on small family enterprises,
benefited large numbers demanding domestic manufactures (ibid., p. 539). For industrialization,
incomes from the leading sector must be broadly distributed, providing demand for manufactures.

8. HIRSCHMAN’S STRATEGY OF UNBALANCE

Albert O. Hirschman (1958) develops the idea of unbalanced investment to complement existing
imbalances. He contends that deliberately unbalancing the economy, in line with a predesigned
strategy, is the best path for economic growth. He argues that the big push thesis may make
interesting reading for economists, but it is gloomy news for the LDCs: They do not have the skills
needed to launch such a massive effort. The major shortage in LDCs is not the supply of savings, but
the decision to invest by entrepreneurs, the risk takers and decision makers. The ability to invest is
dependent on the amount and nature of existing investments. Hirschman believes poor countries need
a development strategy that spurs investment decisions.

28
He suggests that since resources and abilities are limited, a big push is sensible only in strategically
selected industries within the economy. Growth then spreads from one sector to another (similar to
Rostow’s concept of leading and following sectors).

However, investment should not be left solely to individual entrepreneurs in the market, as the
profitability of different investment projects may depend on the order in which they are undertaken.
For example, assume investment in a truck factory yields a return of 10 percent per year; in a steel
factory, 8 percent, with the interest rate 9 percent. If left to the market, a private investor will invest
in the truck factory. Later on, as a result of this initial investment, returns on a steel investment
increase to 10 percent, so then the investor invests in steel.

Assume, however, that establishing a steel factory would increase the returns in the truck factory in
the next period from 10 to 16 percent. Society would be better off investing in the steel factory first,
and the truck enterprise second, rather than making independent decisions based on the market.
Planners need to consider the interdependence of one investment project with another so that they
maximize overall social profitability. They need to make the investment that spurs the greatest
amount of new investment decisions. Investments should occur in industries that have the greatest
linkages, including backward linkages to enterprises that sell inputs to the industry, and forward
linkages to units that buy output from the industry. The steel industry, with backward linkages to
coal and iron production, and forward linkages to the construction and truck industries, has good
investment potential, according to Hirschman.

Even a government that limits its major role to providing infrastructure can time its investment
projects to spur private investments. Government investment in transport and power will increase
productivity and thus encourage investment in other activities.

Initially, planners trying to maximize linkages will not want to hamper imports too much, because
doing so will deprive the country of forward linkages to domestic industries using imports. In fact,
officials may encourage imports until they reach a threshold in order to create these forward linkages.
Once these linkages have been developed, protective tariffs will provide a strong inducement for
domestic entrepreneurs to replace imports with domestically produced goods.

9. THE LEWIS–FEI–RANIS MODEL

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The purpose of the Lewis–Fei–Ranis model is to explain how economic growth gets started in a less-
developed country with a traditional agricultural sector and an industrial capitalist sector. In the
Lewis–Fei–Ranis model, economic growth occurs because of the increase in the size of the industrial
sector, which accumulates capital, relative to the subsistence agricultural sectors, which amasses no
capital at all. The source of capital in the industrial sector is profits from the low wages paid an
unlimited supply of surplus labor from traditional agriculture.

9.1. The Lewis Model

Urban industrialists increase their labor supply by attracting workers from agriculture who migrate to
urban areas when wages there exceed rural agricultural wages. Sir W. Arthur Lewis elaborates on
this explanation in his explanation of labor transfer from agriculture to industry in a newly
industrializing country. In contrast to those economists writing since the early 1970s, who have been
concerned about overurbanization, Lewis, writing in 1954, is concerned about possible labor
shortages in the expanding industrial sector.

Urban industrialists increase their labor supply by attracting workers from agriculture who migrate to
urban areas when wages there exceed rural agricultural wages. Sir W. Arthur Lewis elaborates on
this explanation in his explanation of labor transfer from agriculture to industry in a newly
industrializing country. In contrast to those economists writing since the early 1970s, who have been
concerned about overurbanization, Lewis, writing in 1954, is concerned about possible labor
shortages in the expanding industrial sector.

30
Lewis believes in zero (or negligible) marginal productivity of labor in subsistence agriculture, a
sector virtually without capital and technological progress. Yet he contends that the wage (w) in
agriculture is positive at subsistence (s): w s . For this to be true, it is essential only that the average
product of labor be at a subsistence level, as agricultural workers divide the produce equally among
themselves until food availability is above subsistence. Lewis feels equilibrium wages in agriculture
stay at ws through the classical mechanism of the iron law of wages, in which higher wages are
brought down by population growth, and lower wages raised as output spread over a smaller
population is reduced by an increased mortality rate.

For the more capital-intensive urban industrial sector to attract labor from the rural area, it is essential
to pay ws plus a 30-percent inducement, or w k (the capitalist wage). This higher wage compensates
for the higher cost of living as well as the psychological cost of moving to a more regimented
environment. At wk the urban employer can attract an unlimited supply of unskilled rural labor. The
employer will hire this labor up to the point Q L1 , where the value of its extra product (or the left
marginal revenue product curve MRPL1 ) equals the wage wk. The total wages of the workers are
equal to OQL1, the quantity of labor, multiplied by w k, the wage (that is, rectangle OQ L1BA). The
capitalist earns the surplus, the amount between the wage and that part of the marginal product curve
above the wage.

Lewis assumes that the capitalist saves the entire surplus (profits, interest, and rent) and the worker
saves nothing. Furthermore, he suggests that all the surplus is reinvested, increasing the amount of
capital per worker and thus the marginal product of labor to MRP L2, so that more labor QL2 can be
hired at wage rate wk. This process enlarges the surplus, adds to capital formation, raises labor’s
marginal productivity, increases the labor hired, enlarges the surplus, and so on, through the cycle
until all surplus labor is absorbed into the industrial sector. Beyond this point Q L3, the labor supply
curve (SLk) is upward-sloping and additional laborers can be attracted only with a higher wage. As
productivity increases beyond MRPL3 to MRPL4, the MRPL (or demand for labor) curve intersects the
labor supply curve at a wage w T and at a quantity of labor Q L4 in excess of surplus rural labor (Lewis
1954:139–191).

In the Lewis model, capital is created by using surplus labor (with little social cost). Capital goods
are created without giving up the production of consumer goods. However, to finance surplus labor,
additional credit may sometimes be needed.

31
The significance of Lewis’s model is that growth takes place as a result of structural change. An
economy consisting primarily of a subsistence agricultural sector (which does not save) is
transformed into one predominantly in the modern capitalist sector (which does save). As the relative
size of the capitalist sector grows, the ratio of profits and other surplus to national income grows.

10. THE FEI–RANIS MODIFICATION

How can LDCs maintain subsistence output per farm worker in the midst of population expansion?
John Fei and Gustav Ranis, in their modification of the Lewis model, contend that the agricultural
sector must grow, through technological progress, for output to grow as fast as population; technical
change increases output per hectare to compensate for the increase in labor per land, which is a fixed
resource. Gustav Ranis and John C. H. Fei (1961:533–565; Fei and Ranis 1964) label w k from 0 to
QL3 an institutional wage supported by nonmarket factors such as the government minimum wage or
labor union pressure. This institutional wage can remain infinitely elastic even when the marginal
revenue productivity of labor is greater than zero; this wage remains at the same level as long as
marginal productivity is less than the wage. However, the threshold for both agricultural and
industrial sectors occurs when the marginal revenue productivity in agriculture equals the wage. At
this point, the turning point or commercialization point, industry abandons the institutional wage, and
together with agriculture, must pay the market rate. As with the Lewis model, the advent of fully
commercialized agriculture and industry ends industrial growth (or what Fei–Ranis labels the takeoff
into self-sustained growth).

One problem is to avoid increasing the average product of labor in agriculture and the industrial
institutional wage that would halt industrial expansion. Fei and Ranis solve this with a sleight of
hand; the LDC maintains a constant institutional wage until Q L3 but at the expense of realism: each
migrating farm worker takes his or her own subsistence bundle to the industrial sector.

How do Fei and Ranis prevent rises in food prices (and the agricultural terms of trade) from
increasing the industrial wage? They propose a balanced growth between agriculture and industry.
However, agricultural growth increases farm income, undermining the restraints on the institutional
wage.

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11. DEPENDENCY THEORY

Celso Furtado (1970, 1968), a Brazilian economist with the U.N. Economic Committee for Latin
America, was an early contributor to the Spanish and Portuguese literature in dependency theory in
the 1950s and 1960s. According to him, since the 18th century, global changes in demand resulted in
a new international division of labor in which the peripheral countries of Asia, Africa, and Latin
America specialized in primary products in an enclave controlled by foreigners while importing
consumer goods that were the fruits of technical progress in the central countries of the West. The
increased productivity and new consumption patterns in peripheral countries benefited a small ruling
class and its allies (less than a tenth of the population), who cooperated with the DCs to achieve
modernization (economic development among a modernizing minority). The result is “peripheral
capitalism, a capitalism unable to generate innovations and dependent for transformation upon
decisions from the outside” (Furtado 1973:120).

A major dependency theorist, Andre Gunder Frank, was a U.S. expatriate recently affiliated with
England’s University of East Anglia. Frank, writing in the mid-1960s, criticized the view held by
many development scholars that contemporary underdeveloped countries resemble the earlier stages
of now-developed countries. Many of these scholars viewed modernization in LDCs as simply the
adoption of economic and political systems developed in Western Europe and North America.

For Frank, the presently developed countries were never underdeveloped, although they may have
been undeveloped. His basic thesis is that underdevelopment does not mean traditional (that is,
nonmodern) economic, political, and social institutions but LDC subjection to the colonial rule and
imperial domination of foreign powers. In essence, Frank sees underdevelopment as the effect of the
penetration of modern capitalism into the archaic economic structures of the third world. He sees the
deindustrialization of India under British colonialism, the disruption of African society by the slave
trade and subsequent colonialism, and the total destruction of Incan and Aztec civilizations by the
Spanish conquistadors as examples of the creation of underdevelopment (Frank 1969).

More plainly stated, the economic development of the rich countries contributes to the
underdevelopment of the poor. Development in an LDC is not self-generating nor autonomous but
ancillary. The LDCs are economic satellites of the highly developed regions of Northern America
and Western Europe in the international capitalist system. The Afro-Asian and Latin American

33
countries least integrated into this system tend to be the most highly developed. For Frank, Japanese
economic development after the 1860s is the classic case illustrating his theory. Japan’s industrial
growth remains unmatched: Japan, unlike most of the rest of Asia, was never a capitalist satellite.

Frank suggests that satellite countries experience their greatest economic development when they are
least dependent on the world capitalist system. Thus, Argentina, Brazil, Mexico, and Chile grew most
rapidly during World War I, the Great Depression, and World War II, when trade and financial ties
with major capitalist countries were weakest. Significantly, the most underdeveloped regions today
are those that have had the closest ties to Western capitalism in the past. They were the greatest
exporters of primary products to, and the biggest sources of capital for, developed countries and were
abandoned by them when for one reason or another business fell off. Frank points to India’s Bengal;
the one-time sugar-exporting West Indies and Northeastern Brazil; the defunct mining districts of
Minas Gerais in Brazil, highland Peru, and Bolivia; and the former silver regions of Mexico as
examples. He contends that even the latifundium, the large plantation or hacienda that has
contributed so much to underdevelopment in Latin America, originated as a commercial, capitalist
enterprise, not a feudal institution, which contradicts the generally held thesis that a region is
underdeveloped because it is isolated and precapitalist.

It is an error, Frank feels, to argue that the development of the underdeveloped countries will be
stimulated by indiscriminately transferring capital, institutions, and values from developed countries.
He suggests that, in fact, the following economic activities have contributed to underdevelopment,
not development:

1. Replacing indigenous enterprises with technologically more advanced, global, subsidiary

companies.

2. Forming an unskilled labor force to work in factories and mines and on plantations.

3. Recruiting highly educated youths for junior posts in the colonial administrative service.

4. Workers migrating from villages to foreign-dominated urban complexes.

5. Opening the economy to trade with, and investment from, developed countries.

34
According to Frank, a third-world country can develop only by withdrawing from the world capitalist
system. Perforce, such a withdrawal means a large reduction in trade, aid, investment, and
technology from the developed capitalist countries.

12. THE NEOCOLONIAL DEPENDENCE MODEL

The first major stream, which we call the neocolonial dependence model, is an indirect outgrowth of
Marxist thinking. It attributes the existence and continuance of underdevelopment primarily to the
historical evolution of a highly unequal international capitalist system of rich country–poor country
relationships. Whether because rich nations are intentionally exploitative or unintentionally
neglectful, the coexistence of rich and poor nations in an international system dominated by such
unequal power relationships between the center (the developed countries) and the periphery (the
developing countries) renders attempts by poor nations to be self-reliant and independent difficult
and sometimes even impossible. Certain groups in the developing countries (including landlords,
entrepreneurs, military rulers, merchants, salaried public officials, and trade union leaders) who
enjoy high incomes, social status, and political power constitute a small elite ruling class whose
principal interest, knowingly or not, is in the perpetuation of the international capitalist system of
inequality and conformity in which they are rewarded. Directly and indirectly, they serve (are
dominated by) and are rewarded by (are dependent on) international special interest power groups,
including multinational corporations, national bilateral aid agencies, and multilateral assistance
organizations like the World Bank or the International Monetary Fund (IMF), which are tied by
allegiance or funding to the wealthy capitalist countries. The elites’ activities and viewpoints often
serve to inhibit any genuine reform efforts that might benefit the wider population and in some cases
actually lead to even lower levels of living and to the perpetuation of underdevelopment. In short, the
neo-Marxist, neocolonial view of underdevelopment attributes a large part of the developing world’s
continuing poverty to the existence and policies of the industrial capitalist countries of the northern
hemisphere and their extensions in the form of small but powerful elite or comprador groups in the
less developed countries.10 Underdevelopment is thus seen as an externally induced phenomenon, in
contrast to the linearstages and structural-change theories’ stress on internal constraints such as
insufficient savings and investment or lack of education and skills. Revolutionary struggles or at least
major restructuring of the world capitalist system is therefore required to free dependent developing

35
nations from the direct and indirect economic control of their developed-world and domestic
oppressors.

One of the most forceful statements of the international-dependence school of thought was made by
Theotonio Dos Santos:

Underdevelopment, far from constituting a state of backwardness prior to capitalism, is rather a

consequence and a particular form of capitalist development known as dependent capitalism. . . .
Dependence is a conditioning situation in which the economies of one group of countries are
conditioned by the development and expansion of others. A relationship of interdependence between
two or more economies or between such economies and the world trading system becomes a
dependent relationship when some countries can expand through selfimpulsion while others, being in
a dependent position, can only expand as a reflection of the expansion of the dominant countries,
which may have positive or negative effects on their immediate development. In either case, the basic
situation of dependence causes these countries to be both backward and exploited. Dominant
countries are endowed with technological, commercial, capital and sociopolitical predominance
over dependent countries—the form of this predominance varying according to the particular
historical moment—and can therefore exploit them, and extract part of the locally produced surplus.
Dependence, then, is based upon an international division of labor which allows industrial
development to take place in some countries while restricting it in others, whose growth is
conditioned by and subjected to the power centers of the world.

A similar but obviously non-Marxist perspective was expounded by Pope John Paul II in his widely
quoted 1988 encyclical letter (a formal, elaborate expression of papal teaching) Sollicitude rei
socialis (The Social Concerns of the Church), in which he declared:

One must denounce the existence of economic, financial, and social mechanisms which, although
they are manipulated by people, often function almost automatically, thus accentuating the situation
of wealth for some and poverty for the rest. These mechanisms, which are maneuvered directly or
indirectly by the more developed countries, by their very functioning, favor the interests of the people
manipulating them. But in the end they suffocate or condition the economies of the less developed
countries.

13. HARROD DOMAR GROWTH MODEL

36
Every economy must save a certain proportion of its national income, if only to replace worn-out or
impaired capital goods (buildings, equipment, and materials). However, in order to grow, new
investments representing net additions to the capital stock are necessary. If we assume that there is
some direct economic relationship between the size of the total capital stock, K, and total GDP, Y—
for example, if $3 of capital is always necessary to produce an annual $1 stream of GDP—it follows
that any net additions to the capital stock in the form of new investment will bring about
corresponding increases in the flow of national output, GDP.

Suppose that this relationship, known in economics as the capital-output ratio, is roughly 3 to 1.
(Capital-output ratio is a ratio that shows the units of capital required to produce a unit of output over
a given period of time.). If we define the capital-output ratio as k and assume further that the national
net savings ratio, s, is a fixed proportion of national output (e.g., 6%) and that total new investment is
determined by the level of total savings, we can construct the following simple model of economic
growth:

1. Net saving (S) is some proportion, s, of national income (Y) such that we have the simple equation

2. Net investment (I) is defined as the change in the capital stock, K, and can be represented

by such that

But because the total capital stock, K, bears a direct relationship to total national income or output,
Y, as expressed by the capital-output ratio, c,3 it follows that

Or

or, finally
37
3. Finally, because net national savings, S, must equal net investment, I, we can write this equality as

But from Equation 3.1 we know that S = sY, and from Equations 3.2 and 3.3 we know that

It therefore follows that we can write the “identity” of saving equaling investment shown by
Equation 3.4 as

or simply as

Dividing both sides of Equation 3.6 first by Y and then by c, we obtain the following expression:

Equation 3.7, which is a simplified version of the famous equation in the Harrod-Domar theory of
economic growth, states simply that the rate of growth of GDP (∆Y/Y) is determined jointly by the

38
net national savings ratio, s, and the national capital-output ratio, c. More specifically, it says that in
the absence of government, the growth rate of national income will be directly or positively related to
the savings ratio (i.e., the more an economy is able to save—and invest—out of a given GDP, the
greater the growth of that GDP will be) and inversely or negatively related to the economy’s capital-
output ratio (i.e., the higher c is, the lower the rate of GDP growth will be). Equation 3.7 is also often
expressed in terms of gross savings, , in which case the growth rate is given by

where δ is the rate of capital depreciation.

The economic logic of Equations 3.7 and 3.7’ is very simple. To grow, economies must save and
invest a certain proportion of their GDP. The more they can save and invest, the faster they can grow.
But the actual rate at which they can grow for any level of saving and investment—how much
additional output can be had from an additional unit of investment—can be measured by the inverse
of the capital-output ratio, c, because this inverse, 1/c, is simply the output-capital or output-
investment ratio. It follows that multiplying the rate of new investment, s = I /Y, by its productivity,
1/c, will give the rate by which national income or GDP will increase.

39
UNIT 3: THE IMPORTANCE OF AGRICULTURE IN RURAL DEVELOPMENT

1. THE CONCEPT OF AGRICULTURAL DEVELOPMENT

Agricultural development is a multi-sectional activity that support and promote positive change in the
rural and urban areas. However, the main objectives of agricultural development are the
improvement of material and social welfare of the people. Therefore, agricultural development is
seen as synonymous with rural development, the two terms are different but intrinsically related.
Agricultural development is a part of rural development; rural areas cannot develop without its
agriculture being developed because about 90% of the rural dwellers are engaged in agricultural
practices as their major source of income.

Agricultural development can also address gender disparities. In Sub-Saharan Africa and South Asia,
women are vital contributors to farm work, but because they have less access to improved seeds,
better techniques and technologies, and markets, yields on their plots are typically 20 to 40 percent
lower than on plots farmed by men. Addressing this gap can help households become more

40
productive and reduce malnutrition within poor families. Economic growth is seen as a long term
rises in the capacity to supply increasingly diverse economic goods to its population. It also entails a
sustainable rise in national output with a manifestation of economic growth. Therefore, the role of
agriculture in transforming both the social and economic framework of an economy cannot be over-
emphasized. It has been the source of gainful employment from which the nation can feed its teeming
population, providing the nation‘s industries with local raw materials and as a reliable source of
government revenue. A full developed economy, especially in agricultural sector, means an increase
in the production of export crops with an improvement in the quantity and grades of such export
crops. However, for a country to industrialize, agricultural output will be said to have acquired
growth if agriculture can supply enough materials to agro-allied industries. In the light of this,
Reynolds in Research opined that agricultural development can promote economic development of
underdeveloped countries in four different ways:

i. By increasing the supply of food available for domestic consumption and release labour needed for
industrial employment.

ii. By enlarging the size of the domestic market for the manufacturing sector.

iii. By increasing the supply of domestic saving; and

iv. By providing foreign exchange earned by the agricultural exports.

Therefore, creating a sustainable agricultural development path means improving the quality of life
in rural areas, ensuring enough food for present and future generations and generating sufficient
income for farmers. Supporting sustainable agricultural development also involves ensuring and

41
maintaining productive capacity for the future and increasing productivity without damaging the
environment or jeopardizing natural resources. In addition, it requires respect for and recognition of
local knowledge and local management of natural resources, and efforts to promote the capabilities
of current generations without compromising the prospects of future ones. Consequently, economic
and environmental sustainability, adequate farmers‘ income, productive capacity for the future,
improved food security and social sustainability are important elements of developing countries‘
agricultural development. Thus, when farmers grow more food and earn more income, they are able
to feed their families, send their children to school, provide for their family‘s health, and invest in
their farms and this makes their communities economically stronger and more stable for agricultural
development.

The main aim of agricultural development is the improvement of material and social welfare of the
people. Therefore, it is often seen as integrated approach to improving the environment and
wellbeing of the people of the community.

2. THEORIES AND MODELS OF AGRICULTURAL

DEVELOPMENT
The first step in the process of agricultural development is to abandon the view of
agriculture in pre-modern or traditional societies as essential static. However, the problem
of agricultural development is not that of transforming a static agricultural sector into a
modern dynamic sector, but of accelerating the rate of growth of agricultural output and
productivity consistent with the growth of other sectors of a modernizing economy.
Therefore, any attempt to embrace a meaningful perspective on the process of agricultural
development must abandon the view of agriculture in pre-modern or traditional society as
essential static. Hence, a theory of agricultural development should provide insights into the
dynamics of agricultural growth, either into the changing sources of growth, in economies
ranging from those in which output is growing at a rate of 1.0% or less to those in which
agricultural output is growing at an annual rate of 4.0% or more.

There are about five (5) general models in the literature on agricultural development:

i. The conservation model

ii. The urban-industrial impact model

42
iii. The diffusion model

iv. The high-pay off input model

v. The frontier model

2.1. The Conservation Model

The conservation model of agricultural development evolved from the advances in crop and
livestock husbandry associated with the English agricultural revolution and the concepts of
soil exhaustion suggested by the early German soil scientists. It was reinforced by the
concept in the English classical school of economics of diminishing returns to labour and
capital applied to land and labour. The conservation model emphasized the evolution of a
sequence of increasingly complex land- and labour-intensive cropping systems, the
production and use of organic manures, and labour-intensive capital formation in the form
of physical facilities to more effectively utilize land and water resources.

2.2. The Urban-Industrial Impact Model

The conservation model stands in sharp contrast to models in which geographic differences
in the level and rate of economic development are primarily associated with urban-industrial
development. Initially, the urban-industrial impact model was formulated (by von Thunen)
to explain geographic variations in the intensity of farming systems and in the productivity
of labour in an industrializing society. Later it was extended by T. W. Schultz to explain the
more effective performance of the factor and product markets linking the agricultural and
non-agricultural sectors in regions characterized by rapid urban-industrial development. The
model has been tested extensively in the United States but has received only limited
attention in the less developed world.

2.3. The Diffusion Model

The diffusion of better husbandry practices was a major source of productivity growth even
in pre-modern societies. The diffusion approach to agricultural development rests on the
empirical observation of substantial differences in land and labour productivity among
farmers and regions.

The route to agricultural development, in this view, is through more effective dissemination
of technical knowledge and a narrowing of the dispersion of productivity among farmers
and among regions. The diffusion model of agricultural development has provided the
major intellectual foundation for much of the research and extension efforts in farm
management and production economics since the emergence, in the last half of the
nineteenth century, of agricultural economics as a separate sub-discipline linking the

43
agricultural sciences and economics. The developments that led to the establishment of
active programmes of farm management research and extension occurred at a time when
experiment-station research was making only a modest contribution to agricultural
productivity growth. A further contribution to the effective diffusion of known technology
was provided by the research of rural sociologists on the diffusion process. Models were
developed emphasizing the relationship between diffusion rates and the personality
characteristics and educational accomplishments of farm operators. The insights into the
dynamics of the diffusion process, when coupled with the observation of wide agricultural
productivity gaps among developed and less developed countries and a presumption of
inefficient resource allocation among "irrational traditionbound" peasants, produced an
extension bias in the choice of agricultural development strategy during the 1950s. The
limitations of the diffusion model as a foundation for the design of agricultural
development policies became increasingly apparent as technical assistance and community
development programmes, based explicitly or implicitly on the diffusion model, failed to
generate either rapid modernization of traditional farms or rapid growth in agricultural
output.
2.4. The High Payoff Input Model
The inadequacy of policies based on the conservation, urban-industrial impact, and
diffusion models led, in the 1960s, to a new perspective that the key to transforming a
traditional agricultural sector into a productive source of economic growth is investment
designed to make modern high payoff inputs available to farmers in poor countries.
Peasants, in traditional agricultural systems, were viewed as rational, efficient resource
allocators. They remained poor because, in most poor countries, there were only limited
technical and economic opportunities to which they could respond. The new, high payoff
inputs, as identified by Schultz, can be classified into three categories:

(a) the capacity of public and private sector research institutions to produce new technical
knowledge;

(b) the capacity of the industrial sector to develop, produce, and market new technical
inputs; and

(c) the capacity of farmers to acquire new knowledge and use new inputs effectively.

The enthusiasm with which the high payoff input model has been accepted and translated
into an economic doctrine has been due in substantial part to the success of efforts to
develop new high-productivity grain varieties suitable for the tropics. New high-yielding
wheat and corn varieties were developed in Mexico, beginning in the 1950s, and new high-
yielding rice varieties in the Philippines in the 1960s. These varieties were highly responsive
to industrial inputs, such as fertilizer and other chemicals, and to more effective soil and
water management. The high returns associated with the adoption of the new varieties and

44
the associated technical inputs and management practices have led to rapid diffusion of the
new varieties among farmers in several countries in Asia, Africa, and Latin America. The
impact on farm production and income has been sufficiently dramatic to be heralded as a
"green revolution." The significance of the high payoff input model is that policies based on
the model appear capable of generating a sufficiently high rate of agricultural growth to
provide a basis for overall economic development consistent with modern population and
income growth requirements. As interpreted generally, the model is sufficiently inclusive to
embrace the central concepts of the conservation, urban-industrial impact, and diffusion
models of agricultural development. The unique implications of the model for agricultural
development policy are the emphasis placed on accelerating the process of development
and propagation of new inputs or techniques through public investment in scientific
research and education. The high payoff input model, as developed by Schultz, remains
incomplete as a theory of agricultural development, however. Typically, education and
research are public goods not traded through the market place. The mechanism by which
resources are allocated among education, research, and other alternative public and private
sector economic activities is not fully incorporated into the Schultz model. The model does
treat investment in research as the source of new high-payoff techniques. It does not
explain how economic conditions induce the development and adaption of an efficient set
of technologies for a particular society. Nor does it attempt to specify the processes by
which factor and product price relationships induce investment in research in a particular
direction.

2.5. The Frontier Model

The history expansion of the area cultivated or grazed in the western countries has
represented the main way of increasing agricultural production. However, the most dramatic
example in western history was the opening up or creation of the new continents - North
and South America and Australia - to European settlement during the 18th and 19th
centuries. These countries of the new continents became increasingly important sources of
food and agricultural raw materials for the metropolitan countries of the Western Europe. In
earlier times, similar processes had proceeded, though at a less dramatic pace, in the
peasant and village economies of Europe, Asia and Africa. Intensification of land use in
existing villages was followed by pioneer settlement, the establishment of new villages and
the opening up of forest or jungle were a series of successive change from Neolithic forest
fallow to system of shifting cultivation on bush and grass land fallowed first by short-fallow
systems and in recent years by annual cropping. As regard to the above, where soil
conditions were favorable, as in the great river basins and plains, the new villages gradually
intensified their systems of cultivation. While where soil resources were poor, as in many of
the hill and upland areas, new areas were opened up to shifting cultivation or to nomadic
grazing. As a result of rapid population growth, the model did not last, the limits to the
frontier model were quickly reached. Crop yields were typically low- measured in terms of

45
output per unit of seed rather than per unit of crop area. Output per hectare and per man
hour tended to decline - except in the Delta areas such as in Egypt and South Asia, and the
wet rice area of East Asia. In some areas, the result was to worsen the wretched conditions
of the peasantry while there are relatively few remaining areas of the world where
development along the lines of the frontier model will represent an efficient source of
growth during the last quarter of the 20th century. The 1960s saw the ―closing of the
frontier‖ in most areas of South East Asia, in Latin America and Africa, the opening up of
new lands awaits the development of technologies for all control of pests and diseases
(such as the Tse-tse fly in Africa) or for the relation and maintenance of productivity of
problem soil.

3. ESSENTIALS OF AGRICULTURAL DEVELOPMENT

The essentials of agricultural development are highlighted below:

1. Marketing for farm products

2. Constantly changing technology

3. Local availability of supplies and equipment

4. Production incentives for the farmers

5. Adequate transportation

6. Adequate credit for production and consumption

7. Formation of farmers groups and cooperatives

8. Improving and expanding agricultural land

9. National leaders with objectives of agricultural development

10. Existence of competent planners for agricultural development

3.1. Marketing for farm products

An essential pre-requisite for agricultural development to take place is that there must exist
markets for the farmers‘ surplus production. Agricultural development itself should lead to
increased production. Produce must be sold at prices that would cover cost of production
and leave a surplus to cover or pay for the efforts of the farmer. For effective marketing,

46
there must be that demand for the goods to be produced. The marketing system must be
such that a reasonable proportion of what consumers pay reach the farmers so that they
would be encouraged to produce more. The farmers must also have confidence in the
marketing systems, for instance, an assurance that they will be able to sell all that produce
at fair prices to them and the consumers. There must also be storage facilities, where excess
production at harvest can be stored against the lean period, programmes, like price
stabilization or guaranteed minimum prices, are ways to encourage farmers to increase
production.

3.2. Constantly changing technology

For agricultural development to take place there must be constantly changing technology.
For instance, continuous cultivation of piece of land leads to decrease in fertility. To improve
the soil, there must be adequate fertilizers which should be used at the right time with the
right quantity and combination. Again the continuous cultivation of certain crops leads to
the building up of pests and diseases. There must therefore be new methods of crop
management as well as the use of chemicals and pesticides. There must be the introduction
of new highyielding varieties which should be resistant to certain diseases. As for animals,
better qualities must be produced or introduced. For instance, the exotic layers produce
more eggs than local birds, and in a situation where demand for eggs is high, the
introduction of exotic layers becomes a necessity. Furthermore, when hectrage cultivated
increase, say, for maize or rice as a result of irrigation schemes, it means that production
patterns may change, which will in turn necessitate more and better machines, and more
equipment for sowing or harvesting. With increased production, there must be storage
facilities to store excess production from one season to the other. Some of the techniques
can be developed within a country through research and the findings of such research can
be disseminated through an articulated extension service. Some technologies might be
imported and adapted to local conditions. For sustained agricultural development, a large
percentage of new technologies introduced to the farmers must be developed within a
given country. The advantages of ―indigenous technologies are many and include
cheapness and acceptability. For example, maize could be stored in wooden cribs as against
silos.

3.3. Local availability of supplies and equipment

The new technologies introduced will result in the use of special supplies and equipment.
Some of these include new seeds, fertilizers, pesticides, tractors, cages for layers, waters and
feeders. In most developing countries, these are imported. But for effectiveness in
production, there should be gradual moves towards local production of these goods,
particularly if they would become cheaper. Even if they are imported, they must be made
available in the local areas.

47
3.4. Productive incentives for Farmers
Farming is not as attractive as other occupations. In the peasant environment, much physical
energy is expended in production while returns are low. Many continue to produce just to
exist. Agricultural development cannot take place in this atmosphere. For development to
take place, farmers must be paid ‗fair‘ producer prices, prices that would cover the cost of
production and leave them with some reasonable margin. The guaranteed minimum price
policy is a result of government‘s intention of guaranteeing stable prices for farmers.

Furthermore, the farmers must be able to have all the goods and services that they need for
their families. For instance, good medical care, schools within easy reach of their living
places, good water supply and electricity. In short they must have facilities that will make
them comfortable and so help increase their productivity.

3.5. Transportation
Goods produced by the farmers must get to the consumers or the users at the right time.
Roads are needed to bring to the farmers the required inputs and dispose of the outputs.
Where there are good roads and improved systems of transportation, farmers receive better
prices for their products. In some cases, roads to rural areas are constructed and maintained
by government efforts. In some other cases when certain community roads become
important, the local government may take them over from local communities and help in
maintaining them. Other important factors in transportation include prices of commercial
vehicles and their spare parts.

The importance of transportation of both men and materials cannot be overemphasized in

agricultural development. For example, a man using a wheel-barrow to transport farm
produce is estimated to be able to carry five times the quantity transported by a man using
head porterage. This is also true of donkeys used for transporting farm produce.

3.6. Group action by farmers

There are a lot of farmers‘ organizations, some voluntary, others inspired, that have been found to
help farmers both in the purchase and disposal of production inputs. This group action may range
from group cultivation, to bulk purchases of inputs and to purchase of tractors.

3.7. Improving and expanding agriculture land

48
Land is very important for agricultural production in developing countries. Challenges here
include lack of rainfall or excessive rainfall and lack of proper care in the use and
management of agricultural land. There is need for improving the method of cultivation as
well as working out the combination of crops to be grown. The expansion of agricultural
land can be done through bringing more land into cultivation and through irrigation
schemes. The removal of some institutional factors particularly as they relate to land tenure
is likely to make available more agricultural land.

3.8. Availability of credit for production and processing

Capital is needed by the farmers to break the vicious cycle created by low productivity,
income and savings. For agricultural development to take place, credit must be available at
the time the farmers want it and a t reasonable interest rates. Allowance must also be given
to ensure that farmers receive not only production credit but also consumption credit;
otherwise the farmers are likely to use their production credit for consumption and this will
not help agricultural development.

3.9. National leaders committed to agricultural development

In countries where there are many sources of revenue, the tendency is to give priority to
those that would generate immediate income. Agriculture is almost always neglected or at
least not given a pride of place. Oil-rich countries of the developing world is a case in point.
In most cases, it needs a major food crisis or some international problem in prices of
minerals to gear leaders in these countries to do something meaningful for the agriculture
of the countries. It is, therefore, a necessity that leaders must know that the development of
agriculture is sine qua non of economic development and this must be reflected in
agricultural policies of these countries. Mere enumeration of agricultural policies is not
enough, their translation into reality is essential. This also implies that such leaders or their
planners must understand agricultural policies in terms of types and implementation
strategies.

3.10. Existence of competent planners for agricultural

development
For agricultural development to take place, there must be competent planners as well as
adequate planning data on which meaningful projection for agricultural development could
be made.
3.11. Recognising farmers

49
For countries that desire rapid agricultural development the farmers must be recognized
and be given pride of place. They must not be seen as mere providers of food and cash
crops.

Every effort must be made by the government to ensure that farming is recognized as one
of the important professions, and aids should be channeled to them and the public made
aware of the important role the farmers play in the national economy. Awarding prizes at
agricultural shows and conferring honours on successful farmers are steps that can be taken
to encourage farmers to put in their best so as to achieve rapid and sustainable agricultural
development.

4. INTEGRATED RURAL DEVELOPMENT PLANNING

The concept of integrated rural development effectively combines multiple sectors and
techniques from health care service provision, agricultural expansion, education, and
improvement of infrastructure to technical transfer, regarding local governments as
counterparts to deal with the multidimensional causes of poverty.

Integrated rural development strategy combines the development of various areas of the
rural society including agricultural, educational, health, nutrition, rural electrification, rural
water supply and cooperatives simultaneously. The strategy also aims at improved
employment, access to production resources, access to social services and management and
development of resources. The distinguishing feature of this strategy is that the various
development sectors are considered together rather than in isolation so that their
relationships can be seen.

The use of this strategy involves increased mobilization and motivation of rural people to
participate actively in decision making process concerning their progress and in the
development activities. There should be established institutional relationships which will
facilitate the development of the sectors. Rural development councils should be set up at
the national, state, local government village levels to educate people, clarify ambiguities and
mobilize moral and financial supports for rural development. The past military
administration of General Ibrahim Babangida, has adopted this administrative arrangement
for rural development. It has set up a Directorate of Foods, Roads and Rural Infrastructures
which is charged with the responsibilities for specially facilitating food production, road
construction and provision of other rural infrastructural facilities such as electricity and pipe
borne water supply to the rural area. Many agencies and institutions employ the integrated-
strategy for rural development. Oil companies such as Texaco and Mobil petroleum
companies have engaged in integrated rural development, particularly agricultural
development in more than two decades. The United State Agency for International
Development carried out water supply projects in urban as well as rural areas during the
1960s in Nigeria. The United Nation Educational Scientific and Cultural Organization

50
(UNESCO). The World Health Organization (WHO) has provided funds for emergency
educational and health improvement programmes in rural and urban areas. Universities
have also embarked on integrated rural development on experimental basis. Successful
integrated rural development is therefore a joint effort of many national and international
organizations and agencies.

Features that highlighted different types of integrated rural development include:

o Target-oriented

o Comprehensive and multi-sectoral

o Decentralization

o Participatory, community centered and/or community based

o Multi-sectoral infrastructure improvement

UNIT 4: THE ROLE OF THE STATE IN AGRICULTURE DEVELOPMENT

1. MEANING OF AGRICULTURAL DEVELOPMENT

This refers to development whose main purpose is bio-production and an increase in bio-production,
involving living things and production environments and considering people, land and capital as
production resources or means of production. Agricultural development includes not only activities
directly involved in the production of agricultural goods but also a wide range of other activities.
Among them are research and development of technology, improvement of agricultural promotion
systems and infrastructures, market distribution, agriculture-related laws and systems, agricultural
policy as well as production and supply of food.

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2. THE CONCERN OF GOVERNMENTS WITH AGRICULTURAL
DEVELOPMENT

Much poor policy with respect to agricultural development results from misunderstanding the scope
and complexity of agriculture's role will the total development process. A review of this role will set
the stage for the substantive discussion of the means of facilitating agricultural development.

2.1. The Standard Food-Population-Famine Argument

For reasons of humanitarianism and political economy it is important that food production in low-
income countries keep pace with population growth. This tends, however, to be a holding action not a
positive force for development. It is dangerous to Justify efforts at agricultural development on these
grounds because with success in reaching; this narrowly defined objective attention and resources
may then be switched away from agriculture at just the time when agriculture might be able to play a
positive overall development-oriented role. In addition, the short-term urgency of the food-
population race distracts attention from difficult allocative questions, and from the importance of
obtaining high rates of return to resources used in agriculture, as in other sectors of the economy, and
places too much emphasis on shorten palliative policies as compared to high rate of return, long-term
developmental policies.

2.2. Contributions to Capital Formation and Employment

Rapid population growth places severe demands on the potential of low-income countries to provide
employment. It is important to provide the capital necessary to employment of growing labor forces
not only so that they may contribute to the growth process but also to forestall the difficult political
and social problems accompanying increasing unemployment. High rates of savings are difficult to
achieve unless the agricultural sector itself can provide an increased rate of savings and make those
savings available for employment increasing investment.

Since governments in low-income countries are a particularly important source of investment capital,
agricultural development policy must be closely concerned with the effect of agricultural
development policy oil the fiscal state of the government. Thus consideration must be given to
agriculture's potential to generate from within itself the capital needed for its om development

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particularly insofar as this can be done by tapping savings resources that would otherwise not be
tapped for the development process. Further, the question must constantly be asked as to what extent
the government's fiscal resources must go in the agricultural sector and to what extent the agricultural
sector itself can provide those resources. And further there must be concern with the extent to which
the agricultural sector can contribute to the fiscal resources of the government.

2.3. Agricultural Development and Income Distribution

The close relationship between agricultural development and raising the real incomes of the lower
income members of society is often forgotten. It provides one of the most important reasons for
vigorous pursuit of agricultural development, particularly within the context of a democratically
oriented society.

It is difficult if not impossible to spread employment amongst the lower income people in society and
thereby increase their real incomes if there is not a concurrent increase in the supply of the consumer
goods upon which such low-income people spend the bulk of increments to their income. Low-
income people ill low-income countries spend a high proportion of increments to their income on
food. If per capita food supplies are not increased then it is not possible to follow employment
increasing policies which improve the material well-being of the low income people in society.

Thus, we see a close relationship between agricultural development and the rest of the strategy for
development. If agriculture is not move rapidly enough to provide a substantial increase in the per
capita availability of food then total development policy must minimize the extent to which it
increases employment more rapidly than total population growth. In these circumstances
development policies which emphasize labor using techniques for expanding the infrastructure of
development such as roads, irrigation dams and buildings, must be minimized. If they are not
minimized, increased purchasing power will press against the limited quantity of food and similar
consumer goods and an inflationary situation will follow.

Consequently, without agricultural growth, the development emphasis must be on heavy industry and
other approaches which minimize the use of labor and in turn throw a heavy burden on foreign
exchange resources for capital requirements. Rapid agricultural development can push development
in the healthier direction of greater emphasis on employment creation and wider income distribution.

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2.4. Implication to Agricultural Development Policy

The following factors must be kept carefully in mind, if agricultural development is to have favorable
effects on capital formation, employment and the distribution of income.

(1) Attention must be given to efficient use of resources and hence the question, must constantly be
asked as investment is made in the agricultural sector as to what the rate of return is and how that rate
of return compares with alternative uses of those resources.

(2) Every effort must be made to finance capital investment in apiculture and to administer that
investment with resources from within the agriculture sector which would not otherwise be tapped
for the development effort. Through these efforts the government's scarce fiscal and administrative
resources can be preserved for use in those aspects of agricultural development where other resources
will riot be available, thus keeping the process moving at a maximal rate.

(3) Closely related to the previous point, concern must constantly be given to the extent to which
agriculture can contribute additional tax revenues to help finance that part of its and other sectors
development which must come from the public sector.

(4) Concern must be given to the extent to which employment, pricing and distribution policies
facilitate the spread of the benefits of agricultural development to development oriented programs for
ameliorating the problems of the most disadvantaged people in society.

3. MINISTRY OF AGRICULTURE ZAMBIA

In Zambia Agriculture plays a key role of supporting industries by the production of the required raw
materials , producing exportable agricultural goods, generating employment particularly in rural
areas, as well as providing food stuffs essential for the sustenance of acceptable nutrition standards
and levels.

To achieve the Government’s role, the ministry has the following objectives:-

· To effectively plan, monitor and evaluate agricultural sector programmes;

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· To promote agricultural production by provinding policy guidelines to action programmes

· To facilitate the policies that would ensure national and regional food security through
dependable annual production of adequate suppliesf basic food stuffs at competetive prices;

· To ensure that the existing agricultural resource base is well maintained and improved upon

· To ensure that policies are formulated and implemented to facilitate the generation of income
and employment to maximum feasible levels in all regions through full utilisation of scarce resources
realization of domestic and export potential;

· To provide policy and institutional framework that would contribute to sustainable industrial
development; and

To ensure the contribution of the agricultural sector to the national balance of payments expands by
among other things, by providing incentives that would expand agricultural export in line with
international comparative advantage.

3.1. Mandate of the Ministry of Agriculture & Livestock

The Ministry of Agriculture and Livestock is responsible for the following portfolio functions:

· Agriculture and co-operatives policy

· Agriculture economics and market development.

· Co-operatives development

· Field Services

· Food Security

· Agricultural Research and specialist services

· Rural Finance

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· Agricultural market policy

· Irrigation Development

· Agricultural extension (crops, livestock and fisheries)

· Seeds, standards and grades

· Veterinary and Tsetse control services

· Livestock development

- Veterinary and Fisheries training

4. STATE FAILURE AND AGRICULTURAL PERFORMANCE

Government failures appear to be explained by the self-correcting nature of some market failures,
which makes government intervention unnecessary; by the short-sightedness, inflexibility, and
conflicting policies of government agencies; and by political forces that allow well-defined interest
groups to influence elected and unelected officials to initiate and maintain inefficient policies that
enable the interest groups to accrue economic rents.

5. MARKET FAILURE AND AGRICULTURAL PERFORMANCE

The marketing and producer price policies during the pre-SAP period had a serious adverse effect on
the performance of the agricultural sector. The marketing of most agricultural commodities were
monopolised by the parastatal sector and government-instituted co-operatives. The National
Agricultural Marketing Board (NAMBOARD) and, later, co-operative unions exclusively handled
the marketing of most cereals. Grain milling was also, by government policy, the exclusive preserve
of three parastatals, namely, the Indeco Milling Company; National Milling Company and
Mulungushi Investments. State intervention was also applied to tobacco, cotton and oil seeds.
Nitrogen Chemicals of Zambia Limited, another parastatal, monopolised fertilizer production and
importation. Seed marketing was exclusively assigned to Zamseed, another parastatal. Overall, it was

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NAMBOARD that possessed the virtual monopoly over most agricultural inputs. Moreover, for all
the controlled agricultural commodities, the government regulated both the procurement and sale
prices. Transport rates were also determined by the government. Hence, in order to maintain uniform
prices of controlled goods and services, the government had to extend subsidies.

During the pre-SAP period, the exportation and importation of commodities, including agricultural
products, were controlled by the government through a system of licensing. For maize and maize
meal, exports were not permitted since the government believed that this could adversely affect
national food security. At the time, only NAMBOARD and, later ZCF, were allowed to be involved
in the maize import/export activity. However, unauthorized/unofficial cross-boarder trade is known
to exist between Zambia and many of its neighbours and the overvalued Zambian currency during the
pre-SAP period partly fuelled the inclination for crossborder trade. The highly subsidised cheap
maize meal also provided an incentive to people along the borders to sell it across with handsome
returns.

In the late 1970s, NAMBOARD was increasingly being criticised for inefficiency in meeting
farmers’ needs. Thus, it was stripped of its rural functions and left only with national imports and
exports, inter-provincial movement of crops and inputs, and national and provincial storage. Its rural
functions were handed over to provincial cooperative unions and the Zambia Co-operative
Federation (ZCF). This policy initiative was reversed in 1985 when problems of corruption and
inefficiency in several provincial cooperative unions led to NAMBOARD resuming responsibility for
all stages in crop collection and input supply. In early 1986 and prompted by SAP-induced
liberalisation, major changes away from state control over marketing and input supply were
announced with the removal of NAMBOARD’s monopoly in these activities. As a result, private
trading in input provision and crop collection were allowed alongside Namboard, in order to
encourage efficiency and improved services to farmers.

5.1. Requirements for a market to function

Mohr and Fourie (2007:29) explain that for a market to exist, the following conditions have to be
met:

• There must be at least one potential buyer and one potential seller of the good or service.

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• The seller must have something to sell.

• The buyer must have the means with which to purchase it.

• An exchange ratio – the market price - must be determined.

• The agreement must be guaranteed by law or by tradition.

This description offered by Mohr and Fourie (2007:29) appears to be focused mostly on the ability of
different parties to transact with each other. Earlier it was explained that in its simplest form a market
exists for supply and demand, with a bazaar or a flea market put forward as a good example of a
market. McMillan (2002:5) states that careful analysis of even a simple market such as a bazaar will
reveal that there is more at play than just supply and demand. There are rules and customs, and there
are negotiations, search costs, price comparisons, transaction costs and competition between
suppliers.

There are also non-market actors not directly involved with a specific market, such as the police
outside, the property owner and the providers of credit and packaging. Thus, markets should not be
thought of outside of their social context, as the social context assists societies to deal with the side-
effects of market systems (White, 2002; Lindblom, 2001:277; Granovetter, 1985:482). Markets are
embedded in social systems that are not always apparent or visible, and the embeddedness is often
ignored or assumed by economists and econometric models (e.g. the ArrowDebreu model and other
econometric models).

McMillan (2002) explains that for a market to work, five specific elements are required as a
platform:

• Information that flows smoothly.

• Property rights that are protected.

• People must be able to be trusted to fulfil their promises.

• Side-effects on third parties must be curtailed.

• Competition in the market is fostered.

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Rodrik (2000:5-10) identifies five non-market institutions that are needed for markets to perform:

• Property rights

• Regulatory institutions

• Institutions for macroeconomic stability

• Institutions for social insurance

• Institutions for conflict management

5.2. When markets fail

In cases where markets do not organise production or goods allocation efficiently, the situation is
described as a market failure. The term “market failure” does not imply that a market is not working
at all, but that it is not working efficiently because it is not producing goods that are wanted. The
MacMillan Dictionary (1986) describes market failure as “The inability of a system of private
markets to provide certain goods either at all or at the most desirable or ‘optimal’ level”. Again
reference is made to the allocation of resources not being at the desired or optimal level.

Samuelson and Nordhaus (1992:741) define a market failure as “An imperfection in a price system
that prevents an efficient allocation of resources”. In this definition reference is made to the
importance of the price system being able to reflect the true costs and value of a product, with natural
monopoly, imperfect competition, asymmetry of information and externalities cited as examples of
imperfection. In the case where a price system cannot adequately reflect the true value of the good or
service, a market failure may occur because resources may be allocated inefficiently.

Lines et al. (2006:167) explain that market failures are often visible in the forms of the growth of
monopolistic firms and other noncompetitive organisations, and when factors of production stand
idle. Markets also fail when externalities such as water and air pollution are not included in their
costs by firms, so that they make private profit at the cost of society. A current example of this is that
many mines in South Africa never made provision for clearing up their environmental damage at the
end of their operations. They never included this as a cost in their operations, so at the end of the

59
mine life they did not have funds left to clear up their sites. This is referred to as a market failure; the
customers did not require this provision to be made, the mine did not calculate this cost, and the
institutional configuration did not enforce this provision. The market has failed to prevent
environmental damage. It does not mean that gold or coal was not sold, but that a specific market
(the market for environmental management) did not perform as expected.

When a market fails, it is effectively caused by failures in the institutional arrangements that support
the market. Thus addressing market failure is about getting markets to perform more efficiently or
optimally in the way that resources are allocated or decisions made regarding the production of goods
and services. While certain interventions will be aimed directly at the market, other interventions are
needed at the institutional level. For instance, whenever one or more of the five prerequisites for
markets to perform are missing, this will lead to a market failure. However, this depends on the
maturity of the market, and how fast economic actors learn about the different ways to transact. As
transactions increase, the structure and institutional configuration also change. This takes time.
Sometimes a new market can emerge using many of the configurations and structures of another
market. But in many cases we are simply being too impatient when we describe a certain market as
“failed”. We forget that it sometimes takes time for market actors to figure out what the best
transaction mechanisms are. Of course, in markets with very few transactions, it may never happen.

5.3. Some common types of market failure

In the economics literature several different market failures are described. Over time the importance
of these market failures have changed, and new relationships between some of the failures have also
been built. We define system-immanent (inherent) market failure as a condition under which markets
will fail even in a vibrant economy with a strong anti-trust body.

Natural monopoly

There are products and services where markets cannot work, mostly due to technical reasons. A
typical example is water distribution. A functioning market in water distribution would have to be
based on parallel networks of pipes, which is something that would be prohibitively expensive. A
similar logic applies to electricity distribution. In recent years, some natural monopolies have ceased
to be natural because of technological change, for instance in telecommunications.

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There are also negative external effects, for instance environmental damage or negative health effects
of an industrial plant on its neighbours.

Indivisibilities or economies of scale

An indivisibility describes a situation where the market can overcome the cost barrier, but where the
economies of scale are large and thus investment is limited or is not taking place at all. In most
economic subsectors, there are economies of scale, but there are also minimum efficient scales.

Asymmetric information

Asymmetric information occurs where one party in a market transaction has more information than
the other. This may result in the misallocation of resources due to inefficient decision making on the
part of organisations or individuals, or the collapse of whole markets.

This does not imply that all the sellers’ or buyers’ information must be known for transactions to take
place. Markets with imperfect information exist because products are differentiated, and in imperfect
markets price is not balanced between supply and demand because price becomes a medium of
communication from sellers to buyers. Thus it can be concluded that certain kinds of information in a
complex modern economy will remain incomplete and imperfect – a market failure occurs only when
there are major differences of information between buyers and sellers.

Adverse selection is related to asymmetrical information and is defined as making a sub-optimal

decision as a consequence of incomplete or imperfect information regarding either risks or quality.

Public goods

Consumption of a public good does not diminish anyone’s access to the good. For the purpose of this
publication a public good is defined as something that is non-rivalrous and non-excludable. This
means that consumption of the good by one individual does not reduce the amount of the good
available for consumption by others, and no-one can be effectively excluded from using that good.

A public good market failure occurs when public goods are provided in a way that benefits very little
of society, or where the public sector fails to respond to a demand that is in the interests of society as
a whole.

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6. FARMING SYSTEMS

There are three main categories of farmers in Zambian agriculture: smallscale, medium-scale and
large scale. Small-scale farmers are mostly subsistence producers of staple foods with an occasional
surplus for sale on local markets. The food sufficiency attained at the national level in some years
does not always go hand in hand with household food sufficiency and at least 25 percent of the
small-scale farming households are food (maize) insecure even in the good years. The proportion
under food deficit increases to over 60 percent in some extreme cases. Household food security in
rural areas often deteriorates, particularly during the rainy season when much of the agricultural
activity takes place. Consequently, many smallholder households slide into severe food insecurity as
members work for food at a time when their own fields should be attended to, an aspect that pushes
then further into deeper poverty.

According to the Central Statistical Office, commercial farmers are characterised by extensive
mechanisation, use high level technology and management, rear mostly exotic livestock breeds and
rely heavily on hired labour. Small-scale farmers depend on hand-hoe cultivation and use little of
draught power while depending mainly on unpaid family labour. Further, small-scale farmers are
characterised by low use of modern inputs. Where these are adopted, it is usually the use of hybrid
maize and fertiliser which were over-promoted by past policies. Over the years, there has been very
little interaction between small-scale farmers and commercial farmers. It is mainly through
outgrower schemes (contract farming), 3 a relatively new phenomenon, that some link between
small-scale and commercial-scale farmers is emerging, albeit limited mainly to those in urban areas.
The country’s Poverty Reduction Strategy Paper (PRSP) that was launched in 2002 also places
considerable hope in outgrower schemes as an important route through which smallholders could
enter the liberalised and commercialised agricultural markets. Outgrowing, thus, constitutes for
smallholder farmers the first real step into commercial farming. Participating in outgrowing schemes
gives them access to high value inputs, which is a major constraint in producing marketable
surpluses.

The physical environment has had an important effect on the nature of the farming systems practised
throughout the country. Soil types and rainfall are the most important factors. Rainfall, apart from
having an effect on the soil types, is also an important determinant on the types of crops that could be
grown in an area. The most suitable areas for crop production appear to fall in the range of 800 mm

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to 1000 mm mean annual rainfall. Following the delimitations of rainfall patterns and soil types,
there are several cultivation systems practised in Zambia. These are summarised below.

The Shifting Axe and Hoe Systems: These systems include the shifting cultivation systems
(Chitemene) and have been the mostly widely practised agricultural production systems. They
involve about 40 percent of the country and about 20 percent of the rural population. They are mostly
practised in Zone III of the country’s agro-ecological zones and have been adopted as a counter to
highly leached and low inherent fertility soils. The systems are known to be very good at preserving
the soil structures and fertility. However, because land is left to fallow after 3 to 6 years of
continuous cultivation, they tend to have very high land requirement (extensification). They have
been increasingly abandoned due to population pressures.

Fishing and Semi-permanent Hoe Systems: Practised mostly along the main rivers and swamps
such as Lake Mweru, Lake Mweru Wantipa and Lake Tanganyika in Zone III and flood plains in
Western Province in Zone II. The systems cover 7 percent of the rural population. The dominant
crops are maize, cassava, and groundnuts but fishing is the dominant agricultural activity

Semi Permanent Hoe Systems: Mostly practised in Zone I. There is little crop production due to
harsh climatic conditions although some significant livestock rearing takes place. The limited land
for agricultural expansion is another constraint and hence their continuous cultivation of the same
pieces of land. Shifting cultivation is unsuitable under these agronomic conditions.

Semi Permanent Hoe and Ox Plough: Practised in Zone II with maize, finger millet, sorghum,
groundnuts and beans as the dominant crops. Some cassava, although not very significant, is also
grown in certain areas. Livestock plays an important role in these systems. 25 percent of the rural
population use these farming systems.

Semi-Commercial Ox and Tractor Plough Systems: This group consists mainly of emergent
farmers. The land areas cultivated is usually above 5 hectares employing both draft and tractor
ploughing. Cash crops, particularly maize and groundnuts, are dominant. Mostly found in Zone II
although widespread throughout the country.

Commercial Systems: These are highly specialised farming systems with big variations. Their
characteristics are extensive mechanisation, high level technology and management and rearing

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mostly exotic livestock breeds. Although they are in both Zone II and III, they are mostly
concentrated along the line of rail/urban areas, with a much higher concentration in Zone II.

7. THEORETICAL APPROACHES OF MEASURING

AGRICULTURAL PRODUCTIVITY

Before defining key concepts in productivity analysis, it is important to note at the outset that works
on agricultural productivity can be broadly classified into two groups: theoretical and empirical.
Theoretical studies define productivity and its determinants more rigorously and set precise
relationships for estimation. They also suggest hypotheses that can be tested empirically. Empirical
studies on the other hand examine trends over time and quantify the contributions of specific inputs,
policies, technologies and other productivity-enhancing factors. In the realm of empirical studies,
Kelly et al (1995), in a similar survey to this one, identify three categories of productivity work in
agriculture. These are “macro”, “messo” and “micro” studies. Macro studies use time series data
reported at the national level, while messo studies use national data disaggregated into farm types
(large or small), agro-ecological zones, or administrative regions. Micro studies use cross-sectional
data, which permit comparison across different sub-groups at a particular point in time. This review
is organized around this broad categorization.

7.1. Technical Progress

Methods of production change over time and it is important to be able capture the effects of such
changes on output. Capturing such effects can ideally be done within the production function
framework. Starting of with a simple production relationship in which output depends on capital
input and labour.

7.2. Productivity Growth

The concept of technical progress is closely related to productivity growth. In fact, productivity
growth has been shown to be a major source of growth of aggregate output (Solow, 1957) and of
agricultural output (Hayami and Ruttan, 1985). Hayami and Ruttan (1985) have shown that
agricultural output can grow in two main ways: an increase in use of resources of land, labour, capital
and intermediate inputs or through advances in techniques of production through which greater

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output is achieved through a constant or declining resource base. The latter, also referred to as
productivity, occurs without a corresponding change in output, occasioning a rise in the ratio of total
outputs to inputs. Seen in this way, productivity can be defined simply as a measure of the increase in
output that is not accounted for by the growth of production inputs. Under certain assumptions of
efficiency, productivity growth and technical change are synonymous (Grosskopf, 1993).

7.3. Efficiency

The concept of technical efficiency entails a comparison between observed and optimal values of
output and inputs of a production unit (Sadoulet and Janvry, 1995). This comparison takes the form
of the ratio of observed to maximum potential output obtainable from the given input, or the ratio of
the minimum potential to observed input required to produce the given output, or some combination
of the two. These two give rise to the concepts of technical and allocative efficiency. A productive
entity is technically inefficient when, given its use of inputs, it is not producing the maximum output
possible (output distance), or given its output, it is using more inputs than is necessary. Similarly, a
production unit is allocatively inefficient when it is not using the combination of inputs that would
minimise the cost of producing a given level of output (Sadoulet and Janvry, 1995).

Efficiency and productivity are closely related. Changes in productivity are due to differences in
production technology, differences in the efficiency of the production process, and differences in the
environment in which production takes place (Grosskopf, 1993). Productive efficiency is therefore an
important determinant of productivity and should be incorporated in productivity analyses. The
empirical challenge is to measure productive efficiency and to apportion its share in the productivity
variations.

7.4. Total Factor Productivity

As already indicated, most analyses of agricultural productivity have utilised the TFP concept.
Because of its superiority over other measures of productivity, TFP is examined in some detail in this
sub-section. Grosskopf (1993) outlines the basic procedure for deriving the TFP index

7.5. Measuring Total Factor Productivity

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As stated earlier, the empirical challenge is to estimate A(t) in equation (12). In the literature there
are two different approaches of doing this. The major difference in the approaches is the assumption
made about technical efficiency. Traditional approaches of measuring productivity assume that
output is technically efficient and that production is taking place at the frontier of the production.

66