Chapter 1

AN INTRODUCTION
TO AGRICULTURAL
ECONOMOMICS
AND RURAL
DEVELOPMENT
MA. Mai Le Thuy Van
INTRODUCTION
• Ideas in your mind when you hear the word economics?
• Picture and Ideas in your mind when you hear the word agriculture?
• What is agricultural economics all about?
 Content
1. An overview of agricultural economics and rural
development.
1.1 Basic concepts and scope of the field of agricultural
economics.
1.2 Global trends in supply.
1.3 Trends in agricultural activities
2. The role of agriculture in economic development
3. Calculating the contribution of agriculture to economic
growth

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1. Agricultural Economics and Rural Development.
1.1 Definition and scope of the field of agricultural
economics
• Economics is the science of the administration of scarce resources (land,
labor, capital and management), which are needed in order to produce
goods and services that satisfy human wants.
• Agricultural economics is an applied field of economics in which the
principles of choice are applied in the use of scarce resources such as land,
labour, capital and management in farming activities.
• The field of agricultural economics refer to all economics activities
connected with the control of living organism, such as plants and animals.
• These economic activities gravitate around the production of food, and
they involve many different economic actors as different production and
transformation stages.
1.1 Definition and scope of the field of
agricultural economics (cont.)
Modern vision of agricultural system:
The farm sub-sector: includes all the farm- firms that grow crops and raise
livestock, usually for sales.
• Small size when compared with other production units in the
manufacturing sector.
• Little power in influencing prices in the market  Cooperatives 
Politically organized farmers’ association.
• High level of uncertainty: quasi-unpredictable climatic condition, and
diseases  patterns of seasonality.
• Part-time working: very important employment in the farm sub-sector
1.1 Definition and scope of the field of
agricultural economics (cont.)
The agribusiness sub-sector:
• The input sub-sector: all the firms and industries that produce and
sell goods and services that are used as inputs by the farms.
(fertilizers, pesticides, machinery, animal foodstuff)
• The processing and marketing sub-sector: all the firms and industries
that purchase, store, process, and distribute farm products either on
the domestic or on export markets. (Food-drink-tobacco, large
international trading company, transport, distribution chains,
supermarkets, etc…)
1.1 Definition and scope of the field of
agricultural economics (cont.)
The public sub-sector:
• Government agencies that provide services such as sanitary regulations,
food inspection, and market information and supervision
• The educational and research group: schools, universities and other state
financed research centers, which provide education, training, and research
exclusively to the agricultural sector. These services support farmers
through the dissemination of knowledge and research results.
• The government as a whole: support policies, aid for foreign trade, special
credit concessions and grants of all kinds. (Influence on the determination
of agricultural prices)
• The farm lobby: nation farmers’ associations which have a decisive impact
in terms of national agricultural policy.
1.1 Definition and scope of the field of
agricultural economics (cont.)

The financial sub-sector

• Exclusively connected with agricultural activities.
• Fuel the growth of the farm-firms
1.1 Definition and scope of the field of
agricultural economics (cont.)
The agri-food filière:
• The upstream pole which includes farming and fisheries activities,
agricultural machinery and animal feed producers.
• The downstream pole which comprises catering services, food haulage and
distribution of finished products.
• The core consists thus of the food processing industry itself.
• The upstream pole is a set of industries supplying to the core industries of
the filière. The downstream pole consist of the industries that buy from the
core industries. The core comprises all the industries involved in the
transformation of inputs such as raw material and primary products into
finished goods.
1.2 Global trends in supply
World food producers:
• Asia: 45%
• North and Central America: 16.1%
• Europe: 15%
• Africa: 8.6%
• South Africa: 7.8%
• Oceania: 1.6%
• Others: 5.9%
Source: https://www.slideshare.net/debbieanhall/agricultural-
economicsppt#targetText=Definition%20and%20scope%20of%20the,services
%20that%20satisfy%20human%20wants.
1.2 Global trends in supply
• World food production has exceeded population growth since the 1970s.
• 1990-1999: The population of the world has increased by 13.5 percent, but
world food production has grown even faster, by 20 percent.
• The developing world is gradually catching up with the richer countries,
where food supply has developed into costly surpluses. The world produces
enough food for the entire growing population of our planet. (against the
thesis of Robert Mathus)
• The Green revolution in the 1960s: chemical fertilizers and pesticides,
biotechnology and high-yielding hybrid varieties of cereals.
• The problem of distribution: more than 800 million people still suffers from
severe malnutrition today.
1.2 Global trends in supply (cont.)
Top agricultural producing countries:
https://www.investopedia.com/articles/investing/043015/who-
produces-worlds-food.asp
Food prices:
https://ourworldindata.org/food-prices
Food consumption trend and drivers:
• Food expenditure per person per year.
• Share of consumer expenditure spent on food
1.3 Trends in agricultural activities
• Agricultural activity is a declining portion of the economies of all countries
in the world.
• The importance of agricultural production and employment declines with
economics development, whereas the demand for manufactured goods
and services expands.
• At the beginning, the primary needs to be fulfilled are food.
• Food is a commodity for which the income elasticity of the demand is less
than unity.
• Then comparative advantages in labor-intensive industries, such as
clothing-textiles.
• With the rising standard of living, these labor-intensive activities will be
replace by capital and skill-intensive activities
Table 1: Foreign trade between agriculture and
non-agriculture among countries
Table 2: Agricultural value added per labor
Table 3: Food ratio in total imported goods
Table 4: Export agri-products (million dollar)
2. The role of agriculture in economics
development
• 1. Contribution to… (students fill in the blank)
• 2. Source of food supply
• 3. Prerequisite for raw material
• 4. Provision of surplus
• 5. Shift of manpower
• 6. Creation of infrastructure
• 7. Relief from shortage of capital
• 8. Helpful to reduce inequality
• 9. Based on democratic notions
2. The role of agriculture in economics
development (cont.)
• 10. Create effective demand
• 11. helpful in phasing out economic depression
• 12. Source of foreign exchange for the country
• 13. Contribution to capital formation
• 14. Employment opportunities for rural people
• 15. Improving rural welfare
• 16. Extension of market for industrial output
3. Calculating the contribution of agriculture to
economic growth
• 3.1 Kuznets formula
• Assuming the economy has 02 agricultural and non-agricultural
sectors.
• Y: Output value of the economy
• Ya: Output value of agriculture
• Yn: Output value of non-agricultural sector
• 0, t: Base time and time t
• Rn: Non-agricultural output value growth rate
• Ra: Agricultural output value growth rate
 We have: Formula to calculate the original growth rate
Yat  Yao Ynt  Yno
Ra  Rn 
Yao Yno
 Yat = RaYao + Yao (1)
 Ynt = RnYno + Yno (2)
Plus (1) and (2), we have: Yt = RaYao + RnYno + Yo
Yt – Yo = RaYao + RnYno
Yt  Yo RaYao  RnYno

Yo Yo
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 Note:
Yt  Yo
Ry  Economic growth rate of the economy
Yo
Yao
Pa  the share of agricultural output in GDP
Yo
Yno
Pn  the share of nonagricultural output in GDP
Yo
 Ry = RaPa + RnPn

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3.2 Another formula

ΔYa 1

ΔY 1
Rn Pn

Ra Pa
3.3 Application
3.3.1 Application 1
• Agricultural growth of 5%, proportion of agriculture 30%
• Non-agricultural growth of 10%, non-agricultural proportion of 70%
• Question:
• 1. What is the growth rate of the economy?
• 2. How much does the agricultural and non-agricultural sectors
contribute?
3.3 Application
• 3.3.2 Application 2
• Group selects the data on agricultural economics in Vietnam and
computes the contribution of agriculture to the Vietnam growth rate
by using Kuznets formula.
• Group collects the data on agricultural economics of five concerning
countries in order to compute the contribution of agriculture to the
economic growth rates in comparison of Vietnam and draw
conclusions together with giving suggestions.
3.4 The trend of agricultural contribution to
economic growth rate xu hướng đóng góp nông nghiệp

• The first phase of the economic development process. The proportion

of agriculture is very large, Pn is very low, Ra> Rn, agriculture
contributes greatly to GDP growth.
• Transformation stage: Pn ~ Pa and Ra <Rn. Contribution of agriculture
decreased.
• The period of the economy has developed: Pn > Pa, Rn > Ra. The
contribution of agriculture fell sharply in GDP growth.
Thank you for your attention and hard work
so far!