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AGRICULTURAL TRANSFORMATION AND DEVELOPMENT.

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At different stages of development, different constraints on progress operate. These factors may be sociological, political and economic One of the most critical factors in the early stages of development is the health of the agricultural sector. Without a surplus of food production over subsistence needs, there would be no surplus labour, no saving and no food to feed labour working in alternative activities.

In many developing countries today, agriculture is still extremely backward. Low productivity is a major cause of poverty and retards development of the whole economy.

Two reasons why land as a separate factor of production tends to be subsumed into capital in the production-function approach to economic growth. The practical fact that land without the application of capital is of little use. 1. The quality of land can affect the level of agricultural productivity in the early stages of economic development. The traditional classical notion of land as a fixed factor of production. 2.  .

such factors as the physical attributes of land. Given the dominance of the agric. the ratio of labour to land and the extent of natural resource endowments are likely to exert a major influence on the speed of development. the land-tenure system. rising per capita income and greater capital accumulation. . Sector in the economic structure of developing countries. which in turn leads to increasing returns.  Rising agricultural productivity permits the release of labour from agric to industry.

Market contribution 4. Product contribution 2. 1. Foreign Exchange contribution  .Agric makes four major contributions to the process of economic development. Factor contribution 3.

labour must be fed. The take-off stage must be preceded by agricultural revolution . In other sectors of the economy are to be developed.   This refers to the fact that agriculture must supply food above subsistence needs in order to feed labour working in alternative occupations. and this can not be done by imports until export activities have been developed to provide foreign exchange to pay for the imports.

  Economic progress in the early stages of dev‟t requires an increase in the marketable surplus. The difference b/n total agricultural output and subsistence needs is called the marketable surplus. . the price of food will tend to rise. which in turn requires an increase in labour productivity. because unless the marketable surplus rises as the demand for food increases. Marketable surplus is a very important concept in the neoclassical model of the dev‟t process.

The marketable surplus therefore becomes the major constraint on industrial growth. . higher wages will have to be paid to workers in industry. which will eat into profits and capital accumulation.  This will turn the terms of trade against industry.

The existence of surplus labour plays a major role in the development process.  . 1. Labour contribution 2. The lower the cost of industrial labour. the faster the rate of industrial expansion is likely to be.Factor contribution consists of two parts. but can be released only if productivity in agric rises. Capital contribution Labour for industry and other activities must come from agriculture.

Also agric is a source of saving and capital accumulation for industrial development.     But this depends on the rate at which the agricultural sector is releasing labour. The saving can be voluntary or involuntary. . Voluntary by rich landlords and peasant farmers Involuntary –gov‟t taxing the sector and also through the pricing policies of marketing boards. Industrial development today in many of the rapidly growing countries of South-East Asia is being fuelled by cheap labour drawn from agric.

Peasant farmers have limited horizons and do not respond to incentives. 1. Low prices benefit the industrial sector 2. thus the policy of keeping agric prices low has done enormous damage to the agric sector in developing countries  .The general policy in developing countries of keeping agric prices low has been justified on two grounds. if prices are higher they may actually produce less.

If industry is to grow and prosper.    The demand from agriculture must be the major source of autonomous demand for industrial goods. Thus complementarily b/n agricultural and industrial growth. the agric. Sector is likely to provide the largest market for industrial goods. it must be able to sell its goods. In the early stages of development. .

Dev‟t and industrial growth: „fast growth of industry and sluggish agric. Mexico.  The 1979 WDR remarked that “a stagnant rural economy with low purchasing power holds back industrial growth in many developing countries” Also the 1982 WDR documented the close correspondence across countries b/n agric. . Morocco. Ecuador. Nigeria etc. Were evident only in countries with oil or mineral-based economies such as Algeria.

   A precondition for rapid industrial growth is a rapidly expanding agric. . goods relative to industrial goods is known as the agricultural or industrial terms of trade. There needs to be an equilibrium terms of trade b/n the two sectors to achieve balanced growth so that industrial growth is not constrained from supply side by agric prices being too high or constrained from the demand side by agric prices being too low. sector at least in terms of purchasing power. The pricing of agric.

It provides access to goods that can not be produced domestically or can only be produced at enormous cost in an opportunity cost sense. the only source of foreign exchange is likely to be primary commodity exports. Agric therefore makes an important foreign exchange contribution. .   In the early stages of development. Foreign exchange is a resource just like saving.

If the goods are investment-type goods necessary for the development process. There are many countries that have grown faster given the greater availability of foreign exchange.   Imports are made possible by exporting agric products. then imports will be very productive. .

output per head is barely enough to meet subsistence needs. and the lack of marketable surplus is holding back development on a wide front. Some progress has been made in recent yrs with particular crops in particular countries but the performance is still disappointing.   Overall agricultural productivity in developing countries is less than 1/20 of the level in developed countries. In many countries. . and there are even bigger differences b/n countries.

6. 8. 4. Geography Land-labour ratios Existence of urban bias in the treatment of agriculture The allocation of resources Unfair competition in the world markets The structure of rural societies The organization of agriculture The land-tenure system . 2. 3.1. 7. 5.

To some extent the application of capital to land can compensate for unfavourable natural forces (obviously there some limits) Differences in natural conditions and the fertility of the soil can be no more than a partial explanation of low productivity. .   Climate and terrain determine to a large degree what goods a country can produce. the amt. of cultivatable land available per inhabitant and the land‟s fertility.

   Low productivity may be associated with a high population density and a high ratio of labour to land. so the only solution in the injection of larger doses of capital for labour to work with. low productivity may be associated with the opposite situation of a high ratio of land to labour. fertilizers etc. Productivity might be increased substantially with small applications of capital in the form of drainage schemes. On the other hand. .

The holding down of agricultural prices to favour the industrial or urban sector 2. nutrition and medical provision. housing. Tariff and quota protection for industry which raises the prices of fertilizers. 5. 6. The concentration of investment in industry 3. seeds and equipment. Greater spending in urban areas on education. training. Tax incentives and subsidies to industry 4. which keep the price of industrial inputs and the domestic price of agricultural exports low. which all affect productivity and the quality of life. . Overvalued exchange rates.1.

   This takes the form subsidies that developed countries give to their farmers and the tariffs that developed countries impose on imported agricultural products from developing economies. This leads to over-production and the surpluses are then frequently dumped on the markets of developing economies. . Also farmers in developing economies are not able to compete in their own markets. impoverishing domestic farmers. let alone overseas markets.

    In developing country. rural society consists of rich landowners. peasant. They may be reluctant to make the changes necessary to improve productivity because if things go wrong it will spell disaster . most others in the rural sector are extremely poor. Apart from the landowners. sharecroppers. Because they live on the margin of subsistence they tend to be risk averse. tenants and labourers.

pesticides. drainage schemes etc. Even if they wanted to change the traditional ways of doing things. and attempts to raise productivity will alter that way of life and necessarily involve risk. So no incentive to change .   In developing countries. there is the serious constraint of lack of access to credit to finance the purchase of new seeds. fertilizers. peasant subsistence farming is a traditional way of life.

differs b/n countries largely for historical reasons but the structures have many common x‟tics that keep productivity low. . Agriculture is based on a combination of large estates (latifundios).   The system by which land is held and farmed is a serious impediment to increased productivity in many developing countries. owned by a wealthy few and small farms (minifundios). which are often so small that they cannot support a single family. The structure of peasant agric.

90% of land is owned by 15% of landowners. In Asia because of the high population density. land is continually sold and subdivided leading to a very inefficient structure. the land being owned by absentee landlords.   In Brazil. the major problem is that too many small farms are operated by sharecroppers and tenant farmers. As families multiply and debts rise. .

. The scope for land reform remains enormous in Latin America where 1% of the landowners own 70% of the land.     This involves land rights and security of tenure for tenants. In Africa. while 10% of the largest farms occupy 80% of the land.Kenya. land reform is not always successful. It needs to be accompanied by other measures of agrarian reform. Zimbabwe etc Land reform may be a necessary condition for increased productivity but not a sufficient condition.

Also the need for the so-called “Green Revolution.     This is not about land reform or price policy. . The low productivity of farm labour is due more to an absence of specific factor inputs such as Research and Education. The transformation of traditional agriculture is also dependent on new inputs. than to a shortage of reproducible capital as such. Biotechnology has the potential to raise productivity substantially and to reduce famine and malnutrition.

makes a factor contribution to dev‟t through the release of resources if productivity rises faster than the demand for commodities. In turn. the agric sector provides a market for industrial goods out of rising real income. .  The industrial sector adds to the demand for goods produced by agric and absorbs surplus labour which may raise productivity in agric.