The tendency for agriculture’s share of income to fall can also be • This was the result of combination of the
of combination of the technology
explained by 2 additional powerful effects:
1. Engel’s Law
• Low-income elasticity of demand for agricultural products
• As Income increases, a smaller proportion of this is increase in
income is spent on agricultural products.
• Since demand grows slowly, the sector lags behind the rest of
the economy
• This decreasing domestic demand is unlikely to be made up
by foreign trade growth because of the Engel effect also
apply internationally
• Agriculture’s share in world trade has also diminished over
time.
2. Given that demand is sluggish because of the Engle effect, if
productivity increases in agriculture is relatively strong, then it is
likely that the term of trade for agriculture in international markets
will begin to decline. This tendency has been reflected by a
downward trend in primary product prices for many years.
• In Asia, Green Revolution, which occurred at the beginning of
the industrialization movement in 1960s, further contributed
to the decline in Agriculture by increasing agricultural
productivity quite substantially.
• This facilitated and accelerated the migration to urban areas
where rapidly growing industrial establishments required
more workers.
Productivity in Agriculture
• Timmer (1991) : Agricultural productivity growth is generally
higher than that of industry at the beginning of the process
when industry is still weak and in need of protection from
foreign competition.
• The early phases of industrial development are thus
characterized by a wide productivity gap between agriculture
and the rest of the economy.
• Timmer attributes the sectoral differences in the average
productivity of labor to differences in the production function
and technological change. More importantly, however, he
points out that such differences may also arise from the low
mobility of resources, condition that underlies the
persistenceof a disequilibrium state, such as surplus labor in
agriculture and other low productivity activities, including
handicrafts and services.
• It is the surplus from this increase in profitability of agriculture
that serves to fuel the beginning of the industrialization
process.
• Often, in countries where there are wealthy landlords, such as
the Philippines, this agricultural surplus is also the source of a
burgeoning industrial empire, as entrepreneurs make the
switch from agricultural processing to manufacturing.
• However, because of the rapid growth and dynamism of the
industrial sectors, this was not necessarily true in Asia in the
1960s and 1970s.
• Agricultural productivity growth was also very high in richer
countries of the region such as Korea and Japan.
o This is one reason that the industrialization
experience that began in Japan and continued
after the war in east Asia, in Korea and Taiwan,
served as a model for the development in other
regions.
• In any case, there was a mutual reinforcing interaction
between agriculture and manufacturing in Asia.
associated with green revolution raising output and the rapid
rate of rural to urban migration that reduced population
pressure in countryside but also raised demand for
agricultural products as living standards improved in cities.
• This pattern of productivity growth in agriculture is
significantly different from that observed in Latin America and
Africa.
Agricultural Development in Monsoon Asia
• Monsoon weather cycle in Asia led to reliance in rice
production
• Traditional was practiced post-war required more intensive
manpower specially during planting and harvesting.
• In between planting and harvesting farmers had to seek
employment elsewhere.
• Opportunity cost of labor is high during planting and
harvesting,
• industries cannot hire full-time employees due to the
intermittent demand for labor.
• LFR Model suggest that the opportunity cost of labor shifting
from agriculture to industry was zero. (However, did not
necessarily hold true for Asia)
• Rice yields per hectare are much higher than for other grains,
and it requires more intensive manpower which later on
became a major reason that population densities are much
higher in many parts of Asia.
• As a result of intermittent nature of workforce availability, the
industries that developed in the rural areas were also small
and labor-intensive.
• Asian villages were densely populated and surrounded by
small family farms complemented by small and flexible labor-
intensive workshops and factories, often employing women
and men.
• This was typical situation in peasant agriculture at the
beginning of the postwar era. There was literally no scope for
increasing agricultural productivity within the limitations of
traditional farming technology.
• The opportunity cost of this labor was high, particularly during
the planning and harvesting season. The opportunity cost was
not zero as suggested by LFR model.
How did the shift from agriculture to industry take place in Asia?
• Two keys: Irrigation and higher-yielding varieties.
The agricultural surplus was important because:
1. It give farmers more income to buy consumer goods
2. Permitted some workers to migrate to cities to work in newly
established industries without diminishing overall agricultural
output
• Added income is used to adopt more labor-saving harvesting
and cultivation techniques.
The Efficiency of Traditional Agriculture
• Dates back hundred years or more ago
o Antiquated methods of cultivation
o Trial and error
• Many improvements in economic efficiency made recently in
traditional agriculture could not have occurred without some
change in technology or improvement in irrigation.
Studies in determining if traditional agriculture was efficient (an Indian
experience)
1. Cobb-Douglas production Function
o Variable factors of production are efficiently
allocated.
o Biological assets were not efficiently allocated.
o This is due to lack of economies of scale
o Greater efficiency could be attained of bullocks
were shared among farmers, or if the farm size was
large enough to effectively utilize these work
animals.
2. Econometric Model
o All resources were allocated efficiently
3. Linear Programming
o The potential output of agriculture was higher than
the actual output.
o There are inefficiencies but these could be
removed by improving copping patterns.
o Tentative conclusion: Traditional Agriculture-
Efficient but minor improvements could be made.
Why do Peasant Farmers Resist Innovation and Modernization?
• Studies have shown that various innovative approaches to
farming and great improvements in technology are the key
elements to these increases in productivity.
• Leaving our comfort zone is never easy because of Possible
uncertainties we may Encounter as we move to our zone!
• Explanations:
1. we note that subsistence farming is the m a in economic
activity for about 80 percent of the rural sector in developing
countries. Traditional farming systems in many societies
define the role of individuals in the family. All family
members interact and socialize in the process. In such a
scenario, the adoption of new technology or new varieties of
seeds would not just increase yield. It could also be seen as
a mechanism for altering the way of life for many rural
families.
2. fact that change may be accompanied by uncertainty. Even if
farmers have been assured of a strong prob ability of
achieving higher yields, they will continue to ask: "What if it
fails?" This question assumes greater importance to
subsistence farmers (compared with those that are relatively
better off) because failure of the new technique or new seed
variety can have disastrous consequences.
o Subsistence agriculture is thus a highly risky and
uncertain venture because human lives and
people's futures are a t stake. In such circumstances
where threats of starvation are real, the main
objective of the farmer is not to maximize income,
but to maximize his family's chances of survival.
o Accordingly, when risk and uncertainty are high, a
small farmer may be very reluctant to shift from
traditional technology and crop pattern that has
served him well over the years, that he has come to
know and understand to a new one that promises
higher yields but may entail greater risks of crop
failure.
3. Farmers revealed that disincentives to increasing
productivity by adopting new varieties such reasons as:
o Landlords secured all the gain
o The money lender captured all the profits
o The government guaranteed price was never paid
o Complementary inputs (fertilizers, pesticides, etcs. )
was never made available)
The Microeconomics of Agriculture in Asia
• The aim is to translate the inputs of land, labor, fertilizer,
pesticides, irrigation, and mechanization into higher level of
output.
• This process will depend upon the size of the holding and the
fertility of the soil, weather conditions, susceptibility to
flooding and/or drought, potential for natural disasters, land
tenure arrangements, availability of storage and marketing,
transfer of technology through an agricultural extension
system, and so on.
Green Revolution
• was the phenomena created by the development of new
higher-yielding varieties of rice at the International Rice
Research Institute, located in Los Banos, near Manila, in the
Philippines.
• The advances made in wheat cultivation were adapted to
lesser extent, because wheat is heavily grown only in the
more temperate areas of Asia. The results of the Green
Revolution on rice production are evident from the research
conducted by Mellor and Mudahar
• This study broke down rice production growth into several
components, including area effects from greater irrigation,
and yield effects from fertilizer and new technology.
What really worked?
• Application of Fertilizers, pesticides and herbicides
• Irrigation
• Green Revolution
What factors have not helped much?
• Farm size
o There is an inverse relationship between farm size
and overall farm productivity in traditional
agriculture.
o Inverse relationship disappears with the use of
farming intensity, land quality, use of irrigation and
technology.
• Changes in land tenure
o Tenancy arrangement- operated farms
√ Farmers give the landlord a share of their
harvests.
√ Landlord rents out his land to farmers at a
fixed rate.
o In countries where land distribution is an issue
programs on land redistribution is advocated on
equity grounds.
Macroeconomic Aspects of Agricultural Development
Agriculture in Asia is an intensive sector
- Adopt a labor and capital-intensive technology.
- Keep undervalued exchange to maintain
appropriate trading terms and promote appropriate
labor-intensive production technology.
• In Asia, import-substitution policies were abandoned quite
early and stress was put on export promotion and developing
competitiveness in exports. This led to the adoption of
exchange rate regimes that were at the same time beneficial
to exports and to the continued viability of the rural sector
through the terms of trade effect.
• Another sometimes forgotten aspect of macroeconomic
policy is that interventions designed to protect an industry or
a sector or a factor of production usually have unintended
and often adverse impacts. Thus, a more general equilibrium
approach is often needed to assess the overall impact of
macroeconomic or sectoral policies
Modernizing Agriculture and Rural Welfare: Lessons and Policy
Issues
Mechanization and the Demand for Labor
• In the agricultural sector, the main concern is when and where
mechanization should be introduced
• Since agriculture is highly labor-intensive
• Several studies have shown that a shift to modern varieties
has increased the amount of labor input per hectare but
probably decreased the amount of labor per ton of
production because of yield increases.
• Local conditions play major role in the decision whether to
mechanize or not
Technological Transfer, Growth, and Equity
• The introduction of new technology, be it higher-yielding
varieties or new methods of crop rotation and cropping
systems, of improved irrigation and fertilization, has been the
major factor contributing to increased productivity in
agriculture in Asia during the past fifty years.
• Although modern technology has certainly increased the
average per-capita income, it may have had an adverse
impact on income distribution because there are several
forces at work.
• larger farmers consistently used higher levels of fertilizer and
obtained higher yields. To the extent that farm size and
income are highly correlated, these results suggest a negative
impact of the Green Revolution on income distribution
• most of the higher farm income derived h a s gone to factors
of production other than labor.
• It has also been argued that after the Green Revolution, rice
producers and workers involved in
• rice harvesting were worse off because of "immiserating
growth," that is, the Green Revolution has increased
production beyond demand, thus depressing prices and
reducing incomes.
• It is unlikely that the growth in agriculture induced by the
Green Revolution will continue in the future without changes
being made to the production system and further advances in
technology. Growing water shortages throughout Asia will
constrain further extension of irrigation networks, as well as
present challenges for maintaining or increasing agricultural
productivity.
Genetic Engineering
• In recent years, rice productivity growth has declined. It is now
necessary to implement ongoing technological developments
that have taken place in rice and in other food crops,
horticulture, and livestock.
• There are also more recent developments in genetic
engineering that can be considered-even as there are many
associated issues with its implementation. Genetically
modified organisms (GMOs) are produced by transferring a
gene or set of genes conveying specific desirable traits within
or across species. These GMOs are controversial and have
been banned in some European countries. However, this
method has been widely used in Asia.
Zero Tillage
• Zero tillage minimizes or eliminate stilling of the land and
retains crop residues as ground cover.
• Zero tillage saves on labor and energy required to overturn
the soil, conserves soil fertility, increases tolerance to drought,
and educes greenhouse gas emissions. However, it requires
more weeding and the occasional use of pesticides.
• It is applied in this region in a rice-and-wheat combination.
Wheat is planted immediately after rice, without tillage, and
the wheat seedlings germinate without irrigation, using the
residual moisture from the previous rice
• crop. The system saves water, and reduces production costs
and the incidence of weeds and pests. Rates of return are
reported to be very high-as much as 50 percent or more
Research and Development
• It has been widely documented that agricultural research and
development(R&D) yields high returns in the developing
countries
Food Prices and the Linkages to Energy
International Trade and Resource Transfer
• The role of agricultural exports in earning foreign exchange
was very important at the beginning of the growth phase for
these countries in the 1950s and 1960s.
• All the Asian countries were primary product exporters,
including Korea and Taiwan, both of which exported rice. As
development progressed, agricultural exports diminished in
importance as Asia became more specialized in industrial
exports. Nevertheless, Asia still accounts for a significant
share of world trade in agricultural commodities. While the
economies of East Asia are net food importers, Southeast and
South Asia are still net food exporters.
• The structure of tariffs and the level of protection of
agriculture from international competition tend to vary
inversely with the level of income
• These high tariffs also harm the developing countries in that
they would be able to produce and export more products if
the tariffs were lower.
Shifts out of Primary Grain Production
• There has been a gradual shift in the mix of agricultural goods
produced in Asia from primary food grains, such as rice,
wheat, and sorghum to secondary food crops, such as
livestock, tree crops, horticulture, and fishing.
• These shifts have occurred in line with changes un
comparative advantage, relative prices, and profitability,
which have encouraged the diversification of agriculture.