Technical Progress in Agriculture

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 Definitions
• Understanding technical change can be reduced to understanding
the difference between a technique & technology or technical
& allocative efficiency
• Technical efficiency implies the maximum attainable level of
output for a given level of production inputs, given technology
• Allocative efficiency refers to the adjustment of inputs and
outputs to reflect relative prices, for a given technology.
• Allocative efficiency requires that the Marginal Value Product
(MVP) = Marginal Factor Cost (MFC) for any single variable input
or that the MVP per input should be equal across different levels
of output.
• Economic efficiency requires both technical and allocative
efficiency

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 TPP1 Fig: 1
Maize output (tons) .
A
TPP2

B
. .
C
.
D

O
Labour (hrs)

Fig: 2
Input X1

B . . C

. .D Q2 = 100
A
Q1 = 100
Labour (hrs) 3
 Allocative & Technical efficiency
• Fig 1 shows two production functions TPP1 with
more output for all levels of labour than TPP2
• Allocative efficiency is achieved at A & C where
MPL (slope of PF) is equal to the wage rate.
• Technical Efficiency is attained at the highest
possible PF i.e. TPP1
• B & A are technical efficiency but B is allocative
inefficient.
• C & D are both technically inefficient but C is
allocative efficient
• Thus economic efficiency is achieved at A only

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 Technology & technique.
• Technology (T) refers to the way in which
production is done while a technique is the
actual combination of inputs.
• Technology is all those methods of production
which have been developed in the existing
state of scientific knowledge but a technique
is a single production method i.e. a precise
single combination of inputs used to produce
a given output (Q). Can be represented by a
single point on an isoquant.
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 Features of technical change
• There are two change that can occur
– A movement along an isoquant from point D to C
in fig 2(reflecting change in factor proportions i.e
factor substitution)
– Shift among isoquants from TP2 to TP1 (a change in
output levels for all input combinations) this
reflects technical change.

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 Nature of technological change
• Technological progress is a shift variable with
2 properties:
– More output is produced at any level of input use.
(fig 1.)
– Optimal factor proportions are generally changed.
• With technological progress, a new
production function representing more output
for any level of a given factor emerges

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 Types of technical change
• The second property of technical progress can
be analysed by considering the distributional
consequences of factor biased technical
change.
• A change in factor proportions imply a change
in the total levels at inputs are employed
• there are 3 ways of distinguishing T change
based on factor input ratios.
1. Hicks-neutral- K/L ratio remains constant
despite change in Q.
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 Types of T change
2. Harrod-neutral- K/Q ratio remains the same &
factor proportions are labour saving hence K/L
increases.
3. Solow-neutral- L/Q ratio remains the same &
factor proportions are K saving hence K/L ratio
decreases.
• However adoption of a factor biased
technological change does not imply that less of
the disfavored factor will be employed such
that a Harrod neutral technology may result in
the increase in labour use.

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 L/K

L
L’/K’

l3 c

Q1’
l1 a

Qo

l2 b

Q1

K
k1 k2 k3 Fig:3

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 Factor biased T & total factor use
• Consider fig: 3 in which the optimal factor proportions
are L/K at point a) on isoquant Qo. Isoquant Q1
represents the same level of output after a labour saving
T change such that factor proportions change to L’/K’
• Point b) won’t be profit maximising since less total costs
are incurred than at point a) hence there is an incentive
to increase Q.
• Assuming a constant factor price ratio, an increase in Q
would occur on the new family of isoquants (Q 1) along
L’/K’ to a point like c) with more Q & more K & L being
employed than before even though the new technology
is L saving. This depends on the relative strength of
changed factor proportions & Q adjustment effects.

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 Factor biased technology & total
factor use
• Change in relative factor prices may offset or
reinforce the effect of tchnical change on total
levels of factors utilisation.
• An increase in L/K price ratio would flatten the
isocost & induce more utilisation of K while a
decline in the L/K price ratio steepens the
isocost thereby offsetting the effect of a
labour saving technological change.

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 Characteristics of technical progress
in agric
• Much of the T change is embodied in K i.e.
machinery, drainage, irrigation & buildings but
there has also being significant advances in the
form of high yielding varieties (HYV) of crops,
better seeds, improved livestock etc.
• More technological change in the manner in
which cultivation & husbandry methods have
changed.
• Much of the technical change has being biased
towards saving either L or land.
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Adoption & Diffusion of Technologies
• Adoption relates to the use or non use of the
particular innovation at a point in time or
during an extended period of time.
• Adoption pre-supposes that innovation exists.
• Individual adaptors can be classified as
innovators, early adaptors, early majority, late
majority & laggards according to the date of
adoption.
• Diffusion is defined in relation to the spread of
innovation at the aggregate level viewed over
time i.e. diffusion is a cumulative process of
adoption measured in successive periods.
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 Determinants of the rate of diffusion
of technical change
• The decision to whether or not adopt technology
depends on the critical evaluation of 3 factors
Technical factors-
the technical attributes of a new technology have a
bearing on the decision making process. The more
complex innovation is, the less attractive it becomes to
users.
• if technology is divisible, the users may try it out at a
small scale, if technology is lumpy, small scale trials of
the technology are not possible & farmers will be less
willing to try it.

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 Determinants of the rate of diffusion
of technical change
Economic factors
• The economic potential of the technology (i.e yield &
costs) are also important. Due to the nature of
agricultural production, the economic potential is never
known with certainty e.g HYV may be vulnerable to the
vagaries of nature.
Social factors-
• factors that give a socio-political outlook on the advance
of a technology.
• Adoption/diffusion over time depends on the interaction
of farmers within a given region. The process is often
depicted as that of learning.

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Determinants of the rate of diffusion
of technical change
• While a small group might adopt quickly, most
average producers might wait & see the impact
& evaluate its benefits.
• The rate of diffusion also depends on the rate at
which technological progress is location
specific.
• The social cultural institutional environment
will influence the speed at which the use of the
new T will spread through the farming
community.

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Household Economics & Allocative
Efficiency on Small Farms

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 Household Models
• Peasant households are unique because of
their dual nature as both consumers &
producers. This sets them apart from other
kinds of profit maximizing production units.
• A good peasant household model should
capture the interaction between consumption
& production & its influence on decision
making by households.

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 The drudgery-averse peasant
• Is a theory of household utility maximisation
focusing on the household decision with respect
to amount of family labour (L) to commit to
production in order to satisfy its consumption (C)
needs.
• This involves a trade off between disutility of
work (drudgery which requires avoiding work) &
Y required to meet the household C needs (utility
of income which requires work on the farm)
• The trade-off decision is influenced by the
consumers to workers ratio (c/w) in a household.

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 Assumptions
1. No market for labour i.e. the household
neither hires L nor let family members work
for wages.
2. Farm output (Q) may either be sold at a
market value or used for home C.
3. All peasant households have flexible pieces
of land.
4. There is a minimum acceptable level of C
determined by the community’s social norm.
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 Simple household model model
• The household model contains both C &
production aspects of household decision
making.
• The production function of the household is a
function of household labour input (hrs) & it is
characterised by diminishing returns to labour.
• For the household output (Q) and income (Y) are
synonymous thus the production function ca be
represented as y = Py.f(L) where Py is the market
price of the household Q.
• There are 2 uses of time, either for work or for
Leisure. Time used for farm work.

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 Simple household model
• Household C preferences are represented by a utility function
which is a function of Leisure hrs (h) and income (y) i.e U =
f(Y,h). This can be represented by an indifference curve.
• The slope of the indifference curve shows the amount of y
which the household need to gain in order to compensate for
loss of one unit of leisure (this is the household subjective
wage)
• The household is faced by the following constrains
– The farm household should meet its min C requirements
– There is a limit to the max no of working hrs available
• These constrains are determined to a large extend by the
demographic structure of the household, especially the
consumers to workers ratio for the household.

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 Equilibrium in a simple household
model
• These constraints result in indifference curves which are flat
once the min Y point has been reached indicating
unwillingness to sububstitute Y for leisure at the threshold
level.
• The household max U = f(Y,h) st. Y = py.f(L); Y≥ Ymin; L ≤ Lmax.
• The farm equilibrium position (point a in diagram below) is
reached at a point where the production function is tangent
to the highest possible indifference curve.
• If Y is the only binding constraint equilibrium is at a point
where MRS of leisure for Y equals the MVP of labour. i.e.
MUh/MUy = MVPl
• At this point Le hrs are devoted to farm work generating Ye
income & L – Le hrs are devoted to leisure.

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 Fig1: simple hhld model I2
I1
Output/income Y

TVP

Output/income Y
Ye a

Ymin Ymin

Le Lmax O
Labour hrs (L) Liesure hrs (h)
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 Policy aspects of the household model
• The production function can be altered by a) changes in other factors
of production b)Change in Technology c) Change in market price of Q.
with an effect of shifting the family household income upwards & to a
higher indifference curve. The effect on L is however is indeterminate.
• The shape & slope of the indifference curve are affected by family size
& composition where a higher c/w ration increases household income
preferences.
• The household Y – leisure trade off can be influenced in favor of Y by
provoking peasant households to operate at a higher Q & lower MVPl by
– Taxing marketed Q.
– Increasing the range & availability of consumer goods which raises
MU of Y.
– Land redistribution from large to small farmers on the basis that
small farmers have to operate further on the production function
in order to survive than large scale farmers who can easily meet
their minimum consumption requirements.

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Household model with a L market
• The household model above assumes that the
household cannot hire in or hire out labour.
• Diagram 2 below illustrates the equilibrium
point in the presence of a L market.

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 Diagram 2: simple hhld model
Output/income Y

TVP
I2

Output/income Y
Y2 a
I1
Ye e
b
Y1 Ymin

Lw1 Le Lw2 Lmax L

Labour hrs (L) Liesure hrs (h)
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• From the diagram;
– Le is hired where MVP = w (the market
wage)
– Leisure C is at a point where MRS leisure to
Y equals the relative price of leisure to Y (at
points b on I1 & a on I2
– At these points the household works lw1 hrs
& hires (Le- lw1) L hrs for case 1 or works lw2
of which Le are on the family farm & Lw2 – Le
are wage L hrs outside the farm
 Effects of changes in market wage &
output price
• From the above diagram, it can be noted that a household
that hires L has a marketed surplus while that which hires
out L buys from the market.
• Changes in the wage and output prices are two major shift
factors.
• An increase in the market wage results in a fall in Q with
less labour being employed (less hired L) and a fall in
marketed surplus.
• An increase in the market Q price induces a rise in Q & a
rise in both hired farm L & supply to the market.
• An output price increase is therefore an effective tool for
increasing both agricultural employment & marketed
surplus.

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 Farm size and productivity
• Farm size can be viewed in twos context;
– as area size of the farm which refers to farm size as
measured by the physical quantity of land available for
production e.g. how many hectares?
– Farm size as an economic unit of production which treats a
farm as an enterprise measures by the joint volume of
resources used in production, farm Q or quantity of K.
• Whether small farms (1st definition) make more use of
resources than large farms has important implications for the
designing of an appropriate agricultural development
strategy.
• If small farms are more efficient then the best policy would be
to move from large to small & efficient farms.

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 Inverse relationship of farm size &
productivity.
• Surveys done in India & brazil showed a continuous
decline in productivity as the farm size increases such
that the productivity of the largest farm category was
far below that of the smallest farm category.
• The logic lies in that large farmers under utilise land &
not that yield per area is high for small farms than
large farms under same conditions.
• There are various technical reasons that may
contribute to such an inverse relationship.
1. Land use intensity- decline in productivity (measured as
Q/total farm area) is a result of under utilisation of the
total land area available by large scale farmers.

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 Technical factors contributing to the inverse
relationship between farm size & productivity
2. Output composition- Q composition of large farms may
be biased towards land extensive farming e.g. livestock
production or lower value crops than small farms.
3. Multiple cropping – small farms engage in multiple
cropping (two or more crops being grown in the same
area) than large farms.
4. Soil fertility – large farms only improve the best land
within their area and ignore the less favorable land.
5. Irrigation – there is usually an inverse relationship
between farm size and proportion of total farm under
irrigation.
6. Labor intensity – small farms use more labour per unit
area than large farms.

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 Economic factors.
• The under-utilisation of land on large farms &intensive L
use by small farms result from different relative factor Px
facing the 2.
• Large farms have lower implicit P of land and K, with
relative high cost of L than small farms with low cost of L.
this results in the following;
– Small farmers will commit more L to production than
large farmers
– Large farmers treating land as an abundant resource
– farmers substituting K for L

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