Transcript Agricultural Transformation

Agricultural Transformation and
Rural Development
“It is the agricultural sector
that the battle for long-term
economic development will
be won or lost” – Gunnar
Myrdal, Nobel Laureate in
Economics.
Agricultural Transformation and
Rural Development
Debates in Economic Development: Agriculture Vs
Industry
 Early debates
 David Ricardo: he was the first one to elaborate on
the Adam Smith’s political economy, especially on
Land-rent, distribution and the theory of comparative
advantage.
Agricultural Transformation and
Rural Development
 Ricardo further argued that continued population growth
and the corresponding increase in the demand for food
would result in the cultivation of all land for agricultural
production.
 Hence, the utilization of poor and poorest land would cause
the land value/rent to go up, mainly due to the farmer’s
competition for the better and more profitable land.
 According to David Ricardo, this process would result in a
redistribution of national income to the benefit of landed
aristocracy and to the detriment of industrialists.
Agricultural Transformation and
Rural Development
• Simon Kuznets (1901-1985)
• But the comprehensive relationship was
suggested by another economist Kuznets in
his model where agriculture and industry
interact and function in interdependent way.
Agricultural Transformation and
Rural Development
 Kuznets models of Agriculture and Industry relationship and
this relationship, according Kuznets is positive sum, not zero
sum as envisioned by David Ricardo who considered
agriculture as main hindrance to the process
industrialization.
 Based on this model, we briefly describe variety of role that
agriculture can play in the aggregate growth and
development process.
 Economic extraction from agriculture to industry through
unequal exchange and economists call it transfer of value.
Agricultural
Sector
Taxes
The state
Investment
Investment
Savings
Loans
Taxes
Industrial
Sector
Savings
Credit
system
Loans
Raw material, consumer goods
Exports from
industry
Import of consumer goods
Intermediate, capital goods, etc
Exports from
industry
A simplified model of the interrelations between agricultural and industrial sectors by Kuznets
Agricultural Transformation and
Rural Development
 Breton Woods and beyond
 This debate continued up to the formation of Breton Woods
System in 1944, and modernization theory, put forwarded
Walt W. Rostow, especially focused on the issues in the in
the process of economic development, pertaining to the
developing countries.
 According to this diagnosis, underdevelopment of
agriculture was considered to be the major barrier to the
process of industrialization and was attributed to the
existence of old and traditional structures of the society
where people were less willing to change.
Agricultural Transformation and
Rural Development
 Importance of Agriculture:
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It is a major source of foreign exchange
Provides raw material for industry
Provide labor
Provides food stuff for the population
 One of the main features of the policy from 1950 to 1960 was
that the states in the Third World should do every thing in
their power to extract the greatest possible economic surplus
from agriculture and use it for industrial development.
 But this notion was rejected by some economist.
Agricultural Transformation and
Rural Development
• According to the research of B.F Johnston and John Miller that
agriculture should not only provide resources for
industrialization but should also be developed with the aim of
increasing the supplies of foodstuffs and raw material for
industry (1977).
• They warned that if this did not happen then whole national
development will come to halt.
Agricultural Transformation and
Rural Development
 Peasant rationality: Shultz
 Shultz was one of the scholars who dispelled the traditional conceptions about the
peasants that they are lazy, lethargic and irrational and do not exploit the
opportunities available to them for increasing their production and incomes.
 According to this conception, the subsistence farmers, in particular, are regarded as
irrational, because they continued to produce only for their own households.
 The reason for this attitude is attributed to risk avoidance and risk minimizing
behavior for the sake of profit maximization that involves considerable risk-taking.
 Shultz argued that peasants are poor but efficient, they can bring about
productivity increases and improvements provided they are given access to modern
technology.
 To him peasant are rational actors would react to changes and apply new
technologies, if they have the opportunity to do.
Agricultural Transformation and
Rural Development
 Urban bias: Lipton
 According to him, the most important class-conflict or interest
in the Third World is not between labour and capital, nor is it
between national and foreign interests. It is between the rural
and urban classes – between city and countryside (Lipton
1977).
 According to him, in this conflict, it is generally the urban
classes which dominate because political power is
concentrated in the cities.
 While supporting his argument, he says average rural incomes are
typically around one-third of urban incomes.
Agricultural Transformation and
Rural Development
 At the same time public and private services are much more
extensive in the cities and towns than in the rural areas.
 In addition state and market mechanism generally function in
favour of the cities by extracting surplus from agriculture from
industry.
 Concentration only on urban development and neglect of
agriculture ....would serious distortion in the process of
development
 He therefore suggests that the only sensible and rational strategy
is to concentrate far more resources in agriculture.
 Main reason of Lipton’s dissatisfaction with industrial is that it has
only absorbed the fraction of labour force.
Agricultural Transformation and
Rural Development
 Lack and availability of the capital is an other reason and he, like Schultz,
thinks that peasants are more effective in producing output per
additional unit of capital input.
 Given the enormous productive potential of agriculture, he stresses that
poor countries with large agricultural sectors and large rural population
should allocate more resources to agriculture.
 By saying that he does not belittle the importance of industrial sector
but he wants the removal of those biases which stand in the way of
transfer of resources from rural to urban.
 He further recommends that manufacturing and other urban sectors
should not be subsidized with massive resource transfer of from rural to
urban areas and this practice should be stopped forthwith.
Agricultural Transformation and
Rural Development
 He also recommends agriculture-driven growth process.
 His theory of urban biases has been subjected to
criticism on the ground that in so many countries
where agriculture and industry have developed hand
in hand and no evidence of such transfers have been
found.
 According to some studies East Asian and some
economies in Latin America are exceptions but in
some of the African countries urban biases have been
found and maintained.
Agricultural Transformation and
Rural Development
• how to bring agricultural transformation.
• Impact of rural-urban migration on the agriculture
development.
– Cause - economic stagnation in the rural areas through out the LDC
– 3 billion lived in rural areas in 1997, figure and now it has been soared
to around 3.3 billion.
– Around 70% of world poor live in rural areas and engaged in primarily
subsistence economy.
– Basic concern is survival
Agricultural Transformation and
Rural Development
• According to World Bank figure 1 billion in the developing countries does
not have food.
• Economic stagnation is the core reason of growing poverty, inequality and
rapid population growth.
• Basic function of the agriculture is to provide low-priced food and
manpower to the expanding industrial economy, which is considered as
‘leading sector’ in the overall economic development.
• Lewis model is great contribution, which emphasis on industrial growth
with an agriculture sector fueling this industrial expansion by means of its
cheap food and surplus labor.
Agricultural Transformation and
Rural Development
• Agriculture as a tool of employment-based strategy requires
three elements.
•
1.
Accelerated output growth through technological, industrial and
price incentive changes to raise the productivity of small farmers.
2.
Raising domestic demand for agriculture output.
3.
Diversified and non-agriculture labor-intensive rural development
activities that directly or indirectly support and are supported by the
farming community.
Integrated agricultural and rural development strategies.
Agricultural Transformation and
Rural Development
• Agriculture structures
• Latin American agriculture is characterized by the dualistic
latifundio-minifundio system, in which a small fraction of
landowners own the great majority of cultivated land in the
region.
• Total factor productivity is twice as high on family farms as on
latifundios. Latifundios under-utilize labor, while minifundios
over-utilize labor, relative to land.
• The latifundio system persists partly because land ownership
provides positive externalities, such as social status and
political power.
Agricultural Transformation and
Rural Development
• Asian agriculture is characterized by too many people
crowded onto too little land.
•
Farms tend to be inefficiently small, and production is often
characterized by sharecropping and tenant farming.
•
There is a good discussion of the impacts of colonial rule,
money lending, and recent population growth.
Agricultural Transformation and
Rural Development
• African agriculture is characterized by low productivity
subsistence farming, primitive techniques, shifting cultivation,
and labor scarcity during the peak agricultural season.
•
Though traditionally land has been less scarce in Africa,
population growth has caused land to become more scarce,
and production has been shifting towards small owneroccupied plots, as opposed to communal shifting cultivation.
Agricultural Transformation and
Rural Development
• Identifying characteristics of subsistence farming.
• For example, risk aversion may lead poor peasants to resist
new techniques that offer higher average yields because the
variance of the yield may be larger. The relationship between
risk aversion and sharecropping is discussed. Interlocking
factor markets and monopoly and monopsony power are
mentioned.
• Identifying characteristics of the transition to mixed farming.
Identifying characteristics of modern commercial farming.
Technology plays a major role at this stage.
Agricultural Transformation and
Rural Development
• Reforms
• role of technology, pricing policy and other economic
incentives, land reform possibilities, and a permanent
reduction in urban-rural opportunity imbalances.
Agricultural Transformation and
Rural Development
• Pakistan is an agricultural country. A variety of crops is
cultivated here. The major crops are wheat, rice, cotton and
sugar cane.
• Agriculture contributes 24% to our gross Domestic
Production.
• About 70% of the population is engaged in agriculture directly
and indirectly.
• Agriculture employs a major portion of labour force. About
48% of the labour force is engaged in agriculture and only
12% in the manufacturing sector of the economy.
Agriculture is the major source of foreign exchange earnings.
About 64% of exports are based on agriculture raw material.
Agricultural Transformation and
Rural Development
• Agriculture is a source of food for the increasing population of
our country. About 16 million tons wheat, 4 million tons rice is
produced in country.
• Agriculture is a source of revenues for the federal and
provincial government.
• Local bodies also get revenue from the agriculture sector.
Agriculture provides raw material for a number of industrial
units.
Agricultural Transformation and
Rural Development
• These units employ thousands of workers. Local supply of raw
material keeps these units in operation.
Agricultural Transformation and
Rural Development