Economics of World Agriculture

Lecture 2
Peasant Agriculture

Dr. Tim Lloyd

School of Economics
1
Today . . . .

 Develop a simple model of peasant

(subsistence) agriculture showing:

 Why subsistence farming exists despite

keeping people poor

 That it is economically ‘efficient’ albeit

socially undesirable

 Stylised characterisation
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Characteristics of Peasant Agriculture
 Subsistence farming predominates
 80% of population
 Small family farms
 Crops/animals grown for own consumption

 Labour is the only abundant factor

 Only labour intensity can be adjusted in short run

 Capital (technology) scarce & fixed in supply

 Very few machines, agro-chemical use low

 Land is scarce and of poor quality

 Sustainable system (self sufficient) 3 of 10

Economic Model

 With land and capital scarce, output is

increased by increasing labour input
thus:

 Labour intensity is high

 Productivity of labour is low

 Incomes are low

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 Total, Average & Marginal Products of Labour in Peasant Agriculture

Output (food)

Maximum food output (FMax) in peasant agriculture is low

Subsistence output (F1) near the maximum

FMax
F1
TPL  N , K  1

Labour
Output (food) L1
TPL
MPL 
L
“Implicit wage” of
TPL
subsistence
peasant ( L1)
APL  F1  APL1  L1
L

APL1
w
Labour 5 of 10
MPL1
Peasant Agriculture
 Farmers’ objective: Reach F1

 Given (limitations of) TPL

 Low total product of labour
 Few resources, poor quality
 Only increase food production by working longer
 ‘Diminishing marginal returns’ to labour
 Low average and marginal products

 He must work L1 to achieve F1

 Works long hours
 ‘Implicit wage’ at L1 (w) is very low 6 of 10
Peasant Agriculture
 Characterised by farmers working long
hours with low productivity for very little

 Is this behaviour desirable?

 Normative question
 Answer depends on your opinions and views
 ‘Yes’ and ‘no’ equally valid

 Is this behaviour Optimal?

 Positive question - Realm of the economist
 However, the answer ‘depends’ . . . .
 on . . . the farmer’s ‘opportunity cost’
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Opportunity Cost . . .

‘the alternative foregone’ (by being a

peasant farmer)

 What is the wage he could obtain in

alternative employment?

 If higher than w the peasant farmer is not

‘optimising’ : could earn more elsewhere

 If lower than w, the peasant is optimising

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Opportunity Cost
 As an uneducated, illiterate farmer his
alternative occupations are limited . . .
 landless labourer, collecting firewood,
 Very low wages
 Typically lower than implicit wage (w)

 Hence, although ‘undesirable’

 It is rational to work long hours, given

the constraints of the problem
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Summary
 Peasant Agriculture is typically efficient
given constraints

 Highly constrained (lacks technology)

 Without injection of technology peasant

agriculture remains indefinitely

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