1 Economics of World agriculture

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Lecture 3

The Adoption of Technology in the Model of Peasant Agriculture

The model and outcomes we have described will remain unless something changes
the economic environment (i.e. it is an equilibrium). Clearly, the output could be
improved simply by adding more of the factors that constrain it. It is the lack of
other inputs (technology principally - in all its forms, education skills, seeds,
fertilizers etc.) that is constraining output, but also (higher quality) land too. Without
an injection of new technology of some form, peasant agriculture remains
indefinitely. Indeed, it has done so in many parts of the world for hundreds and even
thousands of years in some ancient societies. But what happens if we introduce
some new technology to this system? The answer is depicted in Figure 2.

Application of more capital (e.g. high yielding varieties - HYV - of seed) rotates the
total product curve upward, to say TPL in Figure 2, raising the output that could be
2

produced. The new technology makes it possible to increase food production far
beyond the subsistence level. Indeed, in order to achieve F2 , very little labour would
need to be applied. The reason is simply that the new technology allows each unit of
labour (and land) to become more productive. 1

To take a closer look at the productivity of labour in this new situation, consider the
second panel of Figure 2, which illustrate the average and marginal productivities of
labour with HYVs of seeds, APL and MPL respectively. They are both higher,
2 2

because with the new technology, labour is more productive. In order to obtain the
subsistence level of output Y1 the farmers now only need to apply L s units of
labour. Will he do this or is there some other - optimal – level of input use? As
before, if he is acting optimally (or rationally) he will equate his marginal product
with the opportunity cost of his labour. Assuming that this still remains at w , he will
thus reduce his labour input to L2 units, (where MPL = w ) at which he produces F2
2

units of food. At L2 , his average productivity is given by that point on the APL
2

curve hence the new income F2 = APL2 × L2 is given by the green shaded area.

It is important to realise that despite the implicit wage remaining the same, the
farmer has a higher income overall yet works fewer hours because at this MVPL , the
farmer has a higher average productivity. (Think about this if you need to, as it will
test whether you fully understand the relationship between the marginal and
average concepts that are so fundamental to economic analysis).

1
Note that the diagram has been drawn such that the new maximum output is achieved at a lower labour
intensity than previously on the grounds that the HYVs may be expected to affect the productivity of the
land as well as labour (all we are implying here is that the productive capacity of the land is reached
sooner i.e. with less labour than with traditional varieties).
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Figure 2 : The Effect of Technology in Peasant Agriculture

Food Output

F2
TPL (N , K )2

TPL (N , K )1
F1

Labour
L2 L1

F2 New technology allows peasant to

work fewer hours & earns higher
income, ( F2 > F1 )

APL 2
APL1
w Labour
Ls L2 L1
MPL1
MPL2

In summary, at this new optimal level of labour input, he produces more food, works
less and has a higher average productivity of labour. This is because we are
combining his labour with more of the other factors of production. One of the
constraints to output has been relaxed.
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Furthermore, because the output level F2 exceeds the subsistence level, the farm
produces more food than the family can consume. In other words, the farm produces
a surplus so that not everyone needs to be a farmer. This surplus is called the
marketable surplus and heralds the onset of economic development. The surplus
can be sold to non-agricultural tradesmen, to purchase textiles, healthcare,
education etc. This allows some of the population to be freed from the land. Not
everyone needs to be a farmer, but can specialise in other occupations such as
blacksmithing. This in turn will make better ploughs and improve the technology that
farmers use, with a result that the total product curve moves further out, allowing
more people to be released from the land and the process continues relentlessly
begins again. In this way, technology is the engine of development.

It is also worthwhile pausing and reflecting on the broader implications of the

model's results. Because the peasant now produces greater than the subsistence
level, he has a marketable surplus. Although he may wish consume more than the
subsistence level, which after all is likely to be a very meagre and uninteresting diet,
but importantly it is likely that there exist a level of output at which he prefers to
exchange some of his surplus food for non-food goods. This allows some (previously
subsistence) peasants to provide goods and services in the non-agricultural sector.
They may become blacksmiths, market traders or farriers. Not only does their
output contribute to the economy and hence boost economic growth but it is likely
that because the goods they sell are to farmers, at least some of their goods and
services will increase the productivity of those farmers (by providing agricultural
technology, or by linking buyers to sellers more effectively).Clearly, by this process
structural diversification of the economy begins.

It is interesting to note that the dawn of economic development that we have

modelled here marks the zenith of agriculture in some sense. It is likely never to
employ as many people again. From here on in, agriculture is an industry that is in
decline. It is not that agriculture wont produce more in absolute terms – indeed a
modern agriculture will produce many thousands times the output of a primitive
system, it is just that it will require a fraction of the labour to do it. By virtue of
being released from the land, people start other industries and thus agriculture’s
share of GDP must decline too. As technology improves, more people will leave the
land – fewer will remain and it will not be long before agriculture is overtaken by
emerging industries in the non-agricultural sector.

The 'Green Revolution'

Recognising the pivotal role of agricultural technology in the process of economic
development (providing food and labour to migrate in to industrial sectors) lay
behind the international effort to eradicate world hunger and accelerate the pace of
economic development that has become known as the Green Revolution. In the
1960s the Rockerfeller and Ford Foundations set up research institutes (International
Maize nad Wheat Improvement Centre (CYMMT) for in Mexico and International Rice
Research Institute (IRRI) for rice in the Philippines) that formed the focus of
international and national effort to increase yields of staple crops. Although plant
breeding through experimentation is what farmers have been doing since the
beginning of agriculture, the term 'Green Revolution' was coined in the 1960s to
highlight some breakthroughs in a particularly fruitful research successes with plant
breeding techniques, led by Dr. Norman Borlaug and his team at Rockerfeller who
later received the Nobel Peace Prize in 1970.
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The Green Revolution varieties that were developed in these and other food science
labs around the world (so called 'miracle seeds) were capable of significantly higher
yields than traditional varieties providing sufficient fertiliser and irrigation were
applied. They tended to be quick-growing, shorter-stemmed hybrids that
concentrated growth in the seed rather than stem and leaf growth. They were also
quick growing allowing multiple cropping compared to the traditional varieties.

Especially in Asia, the hybrid seeds were rapidly adopted and within 20 years had
accounted for 75% of all rice grown in Asia, 60% of the wheat in Latin America and
Asia. One very important facet of the miracle seeds was that they did not exacerbate
income inequality (unlike some of the 'inappropriate' technologies that were
introduced as part of the Green Revolution). Even small farmers and landless
labourers (the latter being among the poorest of the rural poor) benefited since the
technology was 'scale neutral'. Moreover, the increase in supply lowered food prioces
while strengthening the demand for labour.

In S.E. Asia cereal yields went up by 70%; fertiliser and irrigation rates by 200-
300%. Less dramatic but nevertheless considerable was the improvement in yields
and output achieved in Latin America. However, in Africa, yields were unaffected by
Green Revolution technologies, largely due to the fact the fertiliser and irrigation are
rare, although cultural and political obstacles have also played their part.

The Green Revolution success in countries where it was adopted is undeniable: value
added per worker in countries such as Bangladesh India and Brazil has been
impressive (rising between 50 and 100%). Yet, there are countries, mainly in Africa,
which were bypassed by the Green Revolution and have been made worse off as a
result. The story is further complicated by many examples of the introduction of
inappropriate technologies, mostly in the form of mechanisation that simply
substituted mechanical for human effort (making many farmers unemployed) and
building a reliance on (imported) petrol-chemicals.

Summary
What we have established is that subsistence agriculture is a low output system,
thus so because it is starved of technology. The introduction of technology increases
the productivity of labour, increasing income, allowing farmers to produce a
marketable surplus which they may trade for other goods, whether they be
investment, health or consumption goods. Where do these other goods come from?
From farmers that have left the land in pursuit of new occupations to produce basic
goods and services that the farmers want to buy. One corollary of technology
adoption is that fewer farmers are required to feed (even growing) populations.
Whilst it heralds the onset of economic development it also marks the (relative)
decline of agriculture in some sense (i.e. in terms of fewer people working in
agriculture and smaller share of GDP) as they are released labour in to other
emerging industries.

However, in practise it is observed that peasant farmers remain so in many parts of

the world for thousands of years. They remain locked in subsistence agriculture. The
reason is that they do adopt the capital to increase labour productivity and thus
incomes, but why? This is something that we will look at next lecture.