Transcript T. W. Schultz, 1979 Nobel Lecture

International Agricultural
Development and Trade
AAEC 3204
Introduction
George W. Norton
Agricultural and Applied
Economics
Virginia Tech
Copyright 2009
Objectives Today

Discuss basic dimensions of the
world food situation
• Availability & prices
• Malnutrition
• Effect of poverty
• Population
• Environment
• Globalization
Poverty and malnutrition remain
problems in much of the world
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Why? How severe are they? Where?
Does globalization help or hurt?
What role does agriculture play?
How do poor countries affect rich
countries and vice versa?
How does poverty relate to food safety,
the environment, public health, energy,
and food prices?
These are a few of the issues
addressed in this course
Why is it important to
understand agriculture in
other countries?

Agriculture is the most
important sector in many
developing countries and
it affects agriculture
in more developed
countries
Weeding in Bangladesh
Extremes of
poverty
and wealth coexist in
many
developing
countries
Photo taken in
Dhaka, Bangladesh
Where do most of the world’s
poor live?
Incomes (GNP) per capita (US$)
(Source: World Bank, 2005)
Child mortality (per 1000 live births)
Source: World Bank, 2005
Number of Undernourished People in Developing
Countries by Region
Percent of Population
Undernourished by Country
Are people hungry because the world
does not produce enough food?

No. In the
aggregate there
is a surplus of
food if the
World’s food
supply were
divided up
equally
Index of per capita food
production.
(Source: FAOSTAT Data, 2005)
200
180
160
140
Africa
Latin America
100
Near East
Asia
80
60
40
20
0
19
61
19
64
19
67
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
Index
120
Year
If enough food, why do people
die from hunger related causes?

Lack income to
purchase food
• Especially elderly,
sick, orphaned
• Especially when
food prices are high
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Incomes unevenly
distributed
Disasters
How many people in the world
live on less than $1.00 per day?

One-fifth of the
World’s
population or
more than a
billion people
Ethiopian Woman and Child
In what ways do we see
global interdependence?
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Trade, prices
Capital movements
Labor movements
Technology
Environment
Energy
Political
Information flows
What is Globalization?
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Expansion of economic, political, social,
and cultural linkages among countries
around the world
Tendency toward universal application
of economic, institutional, legal,
political, and cultural practices
Spillovers from the behavior of
individuals and societies to the rest of
the world
Why do so many people oppose
globalization?
1. Involves change, some good and some not
2. Winners and losers
Can globalization be reversed?
No
Why has environmental degradation become an
increasing problem in developing countries?
Desertification
Flooding
Chemical pollution
Soil Erosion
Houses in Dhaka,
Bangladesh
Food Prices
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What has happened to food prices in
the world over the past year? three
years? 15 years? 40 years?
Why might high (low) food prices be
both good and bad?
World food prices have increased
significantly, especially since 2006
after a long period of
stable or slowly
declining prices
High food prices
can be good for
farmers
High food prices
are a serious
problem for low
income consumers
Why did food prices rise sharply
from 2006 to 2008?
1.
2.
3.
4.
5.
6.
7.
High price of energy
Subsidized bio-fuel production
Poor weather in certain countries such as
Australia
Economic growth in certain countries
such as China and India
Certain countries have restricted exports
Lack of attention to agr. research and
infrastructure investments over time
Continued population growth
What has happened over
the past year?
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Food prices have retreated from their
highs. Why?
• Global recession
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Will they go back to lower levels of
three years ago soon?
• Not for most commodities. Why?
Population Issues
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Most of the world lives in developing
countries and most population
growth occurs there
Rapid growth
Positive and negative benefits of
population growth
Food-income-populationenvironment interacts
U.S. agriculture – Developing
country linkages
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Effects of U.S. agriculture on
developing countries?
• Helps keeps food prices down to the
extent we export our surplus
Effects of developing countries on
U.S. agriculture?
• Importer of many products
• Competitor for some products
How might China affect the
U.S. economy and U.S.
agriculture?
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Examples:
• Buys U.S Treasury bonds which affects longterm U.S. interest rates
• Export competitor for some farm products and
importer of others
• Its growing demand for fuel drives up prices
• Large labor supply and open economy keeps
price of labor down relative to capital
What is economic
development?
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Improved standard
of living for the
entire population
• Income up, poverty
down, reduced
inequality
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Increased
opportunities for
individual choice
and self esteem
If development is good……

Why is it good?
•Poverty and hunger
down
•Population growth rate
down
•Increased choice
•Improves chances of
global stability
If development is good……
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Why is there also pain with
development?
• Some industries shrink while others
grow
• Urban areas grow creating new
challenges
• Cultural disruptions
• Environmental challenges can increase,
at least in short run
Is average per capita income
a good measure of
development?
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Why or why not?
• Level of living and income highly
correlated, but distributional element
missing
• Fails to capture changes in natural
resource stock
• Omits certain goods and services
• Differences in cost of living
Per Capita Income by Country
Income distribution within countries
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In general, income is more unequally
distributed in developing countries than in
developed countries
Income distribution tends to become more
unequal as development proceeds up to
$8000 GDP/capita, and then more equal
Conclusion: distribution may affect ability
of country to move from middle income to
upper income country
Why is the labor force in
developing countries heavily in
agriculture?
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People have to
eat and if
productivity low,
must farm to
feed themselves
Provides
employment
Why does economic development
require expansion of the nonagricultural sector?
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Capacity of
agriculture to
continue to employ
everyone is limited
People want to
consume more than
food and fiber as
income grows
Why is agricultural
development particularly
important to LDC’s?
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Provide food
Free up resources such as labor
Generate capital
Create market demand
Improve rural welfare
Trade issues
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Why countries trade and why trade
might be helpful to developing and
developed countries
Interrelationships among poverty,
population, environment, and trade
How macroeconomic and trade
policies are interrelated
Trade issues continued
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How developed country policies help
or hurt developing countries (and
vice versa)
Effects of global trade agreements on
agriculture in developing and
developed countries
Why capital movements have
become as important as trade in
goods and services
Summary
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Still a great deal of poverty and hunger
Hunger-poverty-populationenvironment interrelated
Global economy with U.S. and developing country
agriculture interlinked
Development involves broad-based increase in
standard of living
Involves pain as non-ag sector grows relative to
agriculture
Growth in non-ag sector usually depends on growth
in agriculture
International markets (trade and capital
movements) play a role