AGRICULTURE CHAPTER 5

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LINK
• https://en.wikipedia.org/wiki/List_of_largest_producing_countries_of
_agricultural_commodities
Top Agricultural Countries by GDP in World 2017
• 1st Place : China
• 2nd Place : India
• 3rd Place : United States
• 4th Place : Indonesia
• 5th Place : Brazil
• 6th Place : Nigeria
• 7th Place : Turkey
• 8th Place : Japan
• 9th Place : Argentina
• 10th Place : Thailand
WHAT IS AGRICULTURE
• Agriculture is the art and science of cultivating the soil, growing crops
and raising livestock.
• Livestock is commonly defined as domesticated animals raised in an
agricultural setting to produce labor and commodities such
as meat, eggs, milk, fur, leather, and wool. The term is sometimes
used to refer solely to those that are bred for consumption, while
other times it refers only to farmed ruminants, such
as cattle and goats.
AGRICULTURE AND ECONOMIC
DEVELOPMENT
AGRICULTURE IS RICH SOURCE OF FACTOR INPUTS:
• LABOR
• CAPITAL
• FOREIGN EXCHANGE
• RICH MARKET FOR THE OUTPUT OF MODERN URBAN SECTOR

• LEWIS-RANIS-FEI (LFR) ECONOMIC MODEL OF STRUCTURAL CHANGE

AGRICULTURAL TRANSFORMATION
Agricultural transformation is more than changes in farming practices.
It is about catalyzing transformation of a country's rural economy. As
such, more than agricultural trade and subsidy policies are in play.

The African Center for Economic Transformation (ACET)

defines agricultural transformation as a process that leads to higher
productivity on farms, commercially orients farming, and strengthens
the link between farming and other sectors of the economy.
AGRICULTURAL TRANSFORMATION IN ASIA
• At the beginning of the postwar era, all the economies in Asia were
primarily dependent on agriculture.
• Southeast and East Asia had both high rates of economic growth and
agricultural growth in the last 3 decades while countries in South Asia had
a lower rates of both in agricultural and GDP part.
• Few exceptions: Some countries such as Indonesia and Malaysia, did not
have to rely exclusively on primary products, as they have a large mineral
exports. Korea was able to augment local savings with large amount of
foreign borrowings. Singapore and Hongkong, being city-states, did not
have agricultural sector to speak of. In HK, their growth was spurred by
trading center and labor-intensive manufacturing. In SG, their growth was
brought by combination of labor-intensive manufacturing and mineral
processing.
AGRICULTURE’S SHARE OF INCOME
• The tendency for agriculture’s share to fall can also be explained by 2
additional and powerful effects:

• 1. ENGEL’S LAW there is a low-income elasticity of demand for

agricultural products. As income increases, a smaller proportion of
this increase in income is spent on agricultural products.
• 2. Given that demand is sluggish because of Engel’s effect , if
productivity increases in agriculture is relatively strong, then it is likely
that the terms of trade for agriculture in international market will
begin to decline.
GREEN REVOLUTION (1960’s)
• The Green Revolution, or Third Agricultural Revolution, is set of
research technology transfer initiatives occurring between 1950 and
the late 1960s, that increased agricultural production worldwide,
particularly in the developing world, beginning most markedly in the
late 1960s.[1] The initiatives resulted in the adoption of new
technologies, including high-yielding varieties (HYVs) of cereals,
especially dwarf wheats and rice, in association with chemical
fertilizers and agro-chemical, and with controlled water-supply
(usually involving irrigation) and new methods of cultivation,
including mechanization. All of these together were seen as a
'package of practices' to supersede 'traditional' technology and to be
adopted as a whole
PRODUCTIVITY IN AGRICULTURE
• Timmer (1991), in his analysis of developed country data, showed
that agricultural productivity growth is generally higher than that of
industry at the beginning process when industry is still weak and in
need of protection from foreign competition.
• The early phases of industrial development are thus characterized by
a wide productivity gap between agriculture and the rest of the
economy.
• Timmer attributed this sectoral differences in the average productivity
of labor to differences in the production function and technological
change.
PRODUCTIVITY IN AGRICULTURE
• Timmer also points out that such differences may also arise from the
low mobility resources, a condition that underlies the persistence of a
disequilibrium state, such as surplus labor in agriculture and other
low productivity activities.
• Refer to Table 5.3.
AGRICULTURAL DEVELOPMENT IN MONSOON ASIA
• Monsoon Asia refers to the portion of the Asian continent where a
significant seasonal shift of wind patterns occurs throughout the
entire area. The region includes the Indian subcontinent,
Southeast Asia, and China.
• Based on LFR model, opportunity cost of labor shifting from
agricultural to industry was zero.
• Asia receives much more rain on average than other regions of the
world.
• In much of Asia, the monsoon nature of weather cycle led to reliance
on rice production.
AGRICULTURAL DEVELOPMENT IN MONSOON ASIA

• At the beginning of the postwar period, traditional farming methods

were employed to cultivate long local-stalk varieties.
• Traditional Agriculture can be defined as a primitive style
of farming that involves the intensive use of indigenous
knowledge, traditional tools, natural resources, organic fertilizer and
cultural beliefs of the farmers. It is noteworthy that it is still used by
about 50% of the world population.
• Because of seasonal nature of the demand for labor, peasants look for
off-farm employment during the dry or slack season and also during
the season between planting and harvesting.
How did the shift from agriculture to industry
take place in Asia?
• The 2 keys were irrigation and higher-yielding varieties.
• More extensive irrigation helped to regulate the level of water in the fields
and also allowed farmers to plant two or three crops with a concomitant
increase in income with the same number of workers.
• The higher-yielding rice varieties were designed for a more stable water level,
having a shorter stem, and more fruit per plant, and were therefore more
suitable for irrigated land.

• This 2 developments resulted in dramatic increase in agricultural

productivity in the 1960’s and 1970’s.
AGRICULTURAL SURPLUS
• This was important for 2 reasons:

• It gave farmers more income to buy consumer goods and it permitted

some workers to migrate to the cities to work in newly established
industries without diminishing overall agricultural output.
• The added income also allowed for the adoption of more labor-saving
harvesting and cultivation techniques apart from the improved
harvests resulting from a lower level of water in the fields and a less
fragile fruit.
THE EFFICIENCY OF TRADITIONAL
AGRICULTURE
• In India for example, peasant farmers have adapted and refined their
methods of cultivation, crop rotation, water use, and the use of farm
animals to take into account differences in soil fertility, variations in
weather factors, and the availability and quality of traditional seeds
and other varieties. Given this long history of trial and error, it would
appear, a priori, that many improvements in economic efficiency and
made recently in traditional agriculture could not have occurred
without some change in technology or improvement in irrigation.
Evidences to the Efficiency of Traditional
Agriculture
• 3 different techniques have been used in this studies:
1. Cobb-Douglass production function
2. All resources were allocated efficiently
3. Linear programming model
Why do peasant farmers resist innovation and
modernization?
• “Conservative” and “backward attitude” or irrational behavior.
• Pattern and timing of usual tasks would change as well as individual
roles and ways of relating to other family members and the
community.
• Change may be accompanied by uncertainty.
• Inadequate insurance and credit markets which could serve as fall-
back institutions or mechanisms in the event of crop failure.
Survey of farmers revealed that disincentive to
increasing productivity by adopting new varieties
included such reasons as:
• The landlord secure all the gain.

• The money lender captured all the profits.

• The government guaranteed “price” was never paid.

• Complementary inputs was never made available.

MICROECONOMICS OF AGRICULTURE IN ASIA
• 3 ASPECTS OF MODERN AGRICULTURE THAT HAVE SERVED TO
INCREASE AGRICULTURAL PRODCUTIVITY:

• 1. GREEN REVOLUTION
• 2. APPLICATION OF FERTILIZERS, PESTICIDES AND HERBICIDES
• 3. IRRIGATION
MICROECONOMICS OF AGRICULTURE IN ASIA
• FACTORS THAT HAVE NOT HELPED IN THE ASPECT OF MODERN
AGRICULTURE:
• FARM SIZE
• CHANGES IN LAND TENURE
MARCROECONOMICS ASPECT OF
AGRICULTURAL DEVELOPMENT
• Agriculture in Asia is primarily intensive rather than extensive.
Therefore, it is important to employ appropriate labor-intensive
technology.
• A bonus from exchange rate regime that tended to undervalue the
currency that the term of trade for agriculture also improved. This
was because agricultural product in a very real sense are more
tradeable than industrial goods, which are often more protected than
agriculture in the early stage of development.
MARCROECONOMICS ASPECT OF
AGRICULTURAL DEVELOPMENT
• BENEFITS OF HAVING AN UNDERVALUED EXCHANGE RATE WERE:
• It helped agriculture to maintain appropriate terms of trade with industry it
was not discriminated against, and to promote appropriate labor-intensive
technology.
• In the beginning of post war era this king of exchange rate policy was
not in vogue. Exchange rates were overvalued to keep down the cost
of capital imports required for industrial development. This turned
out to be counterproductive for a number of reasons:
• It reinforced import-substitution strategies rather than export promotion.
• It create bias toward capital-intensive industrial development that was not in
line with comparative advantage to the developing countries.
MARCROECONOMICS ASPECT OF
AGRICULTURAL DEVELOPMENT
• In Asia, import-substitution policies were abandoned quite early and
stress was put on export promotion and developing competitiveness
in exports.
• Another sometimes forgotten macroeconomic policy is that
interventions design to protect an industry or sector or a factor
production usually have unintended and often adverse impacts.
Thus, a more equilibrium approach is often needed to assess the
overall impact of macroeconomic or sectoral policies
MODERNIZING AGRICULTURE AND RURAL
WELFARE: LESSONS AND POLICY ISSUES
• MECHANIZATION AND DEMAND FOR LABOR
• TECHNOLOGICAL TRANSFER, GROWTH AND EQUITY
• GENETIC ENGINEERING
• ZERO TILLAGE
• FOOD PRICES AND LINKAGES TO ENERGY
• INTERNATIONAL TRADE AND RESOURCE TRANSFER
• SHIFT OUT OF PRIMARY GRAIN PRODUCTION