WERABE UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS 1

DEPARTMENT OF ECONOMICS

DEVELOPMENT ECONOMICS TWO

PREPARED BY
KEDIR ABDU (MSc)
DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR
 CHAPTER FOUR

4. AGRICULTURE AND ECONOMIC DEVELOPMENT

It is in the agricultural sector that the battle for long-term economic
development will be won or lost.
—Gunnar Myrdal, Nobel laureate in economics

The importance of agriculture to economic development lies in:

1) Providing more food to the expanding population

The demand for food increases with the expansion of population

in towns and industrial areas. When the output expands with
increased productivity, it increases farmer’s income which in
turn leads to a rise in the demand for food. Taking these into
account, the increase in farm output should be at a higher rate
than the rate of increase of food demand so that agriculture can
adequately feed the rising population.
DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 2
2)Increasing the demand for industrial products and thus
necessitating the expansion of the secondary and tertiary sectors

Increased rural purchasing power caused by expansion of

agricultural output and productivity will tend to raise the
demand for manufactured goods and extend the size of the
market. This will lead to the expansion of the industrial sector.

3) Providing additional foreign exchange earnings for the

import of capital goods for development through increased
agricultural exports

As output and productivity of the exportable goods expand,

their exports increase and result in larger foreign exchange
earnings.
DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 3
Thus, agricultural surplus leads to capital formation when capital
goods are imported with this foreign exchange.

4) Increasing rural income to be mobilized by the state

Increasing farm receipts is perhaps the best way of capital

formation. This can be done by mobilizing increased farm income
through agricultural taxation, land revenue, agricultural income
tax, land registration charges, school fees, fee for providing
agricultural technical services and other types of fees that cover all
or part of the cost of services provided to the farm population.

DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 4

 5) Providing productive employment

As agricultural productivity and farm income increase non-

farm rural employment expands and diversifies.

6) Improving the welfare of the rural people

Lastly, increase in rural income as a result of the

agricultural surplus, tends to improve rural welfare.

4.1. Agricultural Progress and Rural Development

Traditionally in economic development, agriculture has been

assumed to play a passive and supportive role.

DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 5

 Its primary purpose is to provide sufficient low-priced food and
manpower to the expanding industrial economy, which is thought
to be the dynamic “leading sector” in any overall strategy of
economic development.

Today, however, most development economists share the

consensus that far from playing a passive, supporting role in
the process of economic development, the agricultural sector, in
particular, and the rural economy, in general, must play an
indispensable part in any overall strategy of economic progress,
especially for the low-income developing countries.

DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 6

An agriculture- and employment-based strategy of economic
development requires three basic complementary elements

(1) Accelerated output growth through technological, institutional,

and price incentive changes designed to raise the productivity of
small farmers;

(2) Rising domestic demand for agricultural output derived from

an employment-oriented, urban development strategy; and

(3) Diversified, nonagricultural, labor-intensive rural development

activities that directly and indirectly support and are supported by
the farming community.

DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 7

To a large extent, therefore, agricultural and rural
development has come to be regarded by many economists as
the sine qua non of national development. Without such
integrated rural development, in most cases, industrial
growth either would be stultified or, if it succeeded, would
create severe internal imbalances in the economy.

Particularly, this integrated rural development has to be given

a due emphasis in less developing countries where the
majority people are rural dwellers.

DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 8

 4.2. The Structures of Agrarian Systems in

the Developing World

4.2.1. Three Systems of Agriculture

A first step toward understanding what is needed for further

agricultural and rural development progress is a clear
perspective of the nature of agricultural systems in diverse
developing regions and, in particular, of the economic aspects
of the transition from subsistence to commercial agriculture.

The World Development Report (WDR) has classified the

developing world agricultural system into three main
categories:

DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 9

 1) Agriculture-based countries
For these countries which are under this category, agriculture is
the main source of economic growth which may be due to it
contributes the largest share of GDP. For instance, about 82% of
the rural population of sub-Saharan Africa lives in these
countries.

2) Transforming countries
This category includes those countries whose share of the poor
who are rural is very high (almost 80% on average) but
agriculture now contributes only a small share to GDP growth
(7% on average). Most of the population of South and East Asia,
North Africa, and the Middle East lives in these countries, along
with some outliers such as Guatemala.

DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 10

 3) Urbanized countries

In these countries, rural-urban migration has reached the point

at which nearly half, or more, of the poor are found in the
cities, and agriculture tends to contribute even less to output
growth.

The urbanized countries are largely found in Latin America

and the Caribbean, along with developing eastern Europe and
Central Asia, and contain about 255 million rural dwellers.

In general, the position of countries within these groups is not

stagnant. Many countries that were in the agriculture-based
category moved to the transforming category in recent
decades, most prominently India and China

DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 11

It is also important to note that regional disparities can be
quite large within countries. India has regions that fall within
each of the three classifications, from modernized Punjab to
semi feudal Bihar. Moreover, within regions, large and
small, rich and poor often exist side by side.

4.3. The Important Role of Women in Agriculture

A major and until recently often overlooked feature of

agrarian systems in the developing world, particularly in
Africa and Asia, is the crucial role played by women in
agricultural production

DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 12

In Africa, where subsistence farming is predominant and
shifting cultivation remains important, nearly all tasks
associated with subsistence food production are performed
by women.

Women work most of agricultural activities

Although men works the initial tasks of cutting and trees and
bushes on a potentially cultivable plot of land, all subsequent
operation including removing and burning felled trees,
sowing or planting the plot, weeding, harvesting, and
preparing the crop for storage or immediate consumption are
performed by women.

DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 13

Women’s role in cash crop production

Women also do much of the labor for cash crop production,

cultivate food for household consumption, raise and market
livestock, generate additional income through cottage
industries, collect firewood and water, and perform household
chores, including the processing and cooking of food.

Though, the production and profits from commercial crops are

generally controlled by men, women are usually responsible
for the strenuous jobs of weeding and transplanting.

DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 14

Women’s role in maintaining household food security

Above all, perhaps the most important role of women is

providing food security for the household. This is
accomplished through the supplementation of household
earnings, diversification of household income sources, and
raising of livestock to augment household assets.

It has become clear that since women produce a large share of

agricultural output and supply a large share of the labor—a
share that has actually been increasing over time—successful
agricultural reform will require raising women’s productivity
and ensuring that gender-specific policies are at the core of
rural development strategy.
DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 15
Enhancing women’s investments in revenue-generating
projects and livestock are crucial to stabilizing household
income.

Despite women have a significant contribution in the

agricultural production, their access to resource is very
limited compared to their male counterpart.

Because the active participation of women is critical to

agricultural prosperity, policy design should ensure that
women benefit equally with male from development
efforts

DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 16

 4.4. The Economics of Agricultural Development
4.4.1. Special Features of Agriculture
Agriculture in the developing countries has the following features:

1) Source of Livelihood

The livelihood of the majority people in developing countries is

depends on agriculture. It provides the employment for more than
70% of the total population in most of the developing countries.

2) Labor Intensive Cultivation

Due to the increase in population, the pressure on land holding

increased. Land holdings get fragmented and become uneconomical.
Machinery and equipment can not be used on such farms.
DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 17
3) Under employment

Due to the inadequate irrigation facilities and uncertain

rainfall, the production of agriculture is less and farmers
find work a few months in the year. Their capacity of work
cannot be properly utilized. In agriculture there is under
employment and disguised unemployment.

4) Small size of land holding

Due to large scale fragmentation of land, land holding size

is quite small. For instance, in India the average land
holding was 2.3 hectares while in Australia it was1993
hectares and in USA it was 158 hectares.

DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 18

5) Traditional methods of Production

In most of developing countries, the methods of production

in agriculture are traditional. This may be due to poverty
and illiteracy of people. The traditional technology is the
main cause of low production.

6) Low agricultural production

Agricultural production is very low in most of developing

countries. For instance, India produces 27 Qtls wheat per
hectare. Whereas, France and Britain produce 71.2 Qtls and
80 Qtls per hectare, respectively. The average productivity
of agricultural laborer in India is 162 dollars in India, while
973 dollars and 2408 dollars in USA, respectively.

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7) Dominance of food crops

Almost 75% of the cultivated area in developing countries

is under food crops like wheat, rice. And the remaining 25%
of cultivated area is under commercial crops.

4.4.2. The Contribution of Agriculture to Development

Nobel laureate Simon Kuznets introduced an early schema,

noting that agriculture made four “contributions to
economic development”:

1) The product contribution of inputs for industry such

as textiles and food processing

DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 20

2) The foreign-exchange contribution of using agricultural
export revenues to import capital equipment

3) The market contribution of rising rural incomes that create

more demand for consumer products,

4) The factor market contribution

This can be divided between the labor contribution (Lewis’s

manpower)—workers not needed on farms after agricultural
productivity was raised could then work in industry—and the
capital contribution (some farm profits could be reinvested in
industry as agriculture became a steadily smaller fraction of
national income).
DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 21
4.4.3. Constraints of Agricultural Productivity

1) Urban bias and landowner bias

Most of the development strategies are favoring urban. And agriculture

is neglected or receiving relatively little attention. In addition to this,
neglecting peasants and favoring small minorities of large landowners
will have a significant adverse effect on agricultural productivity.

2) Culture and Caste

In some developing countries, the agricultural reform policies neglect

some ethnic group or social class (the minorities) and focuses on
benefiting the dominant group. There is wide disparity in income
between the ethnic minority group and the dominant group. This
problem is very prevalent in Asia countries.
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3) Gender Bias

Despite women’s important role for agricultural productivity,

they are exposed to lack of access to resource (land ownership),
they often receive little support from agricultural extension
services, getting less credit access compared to male etc…

4) Inadequate Infrastructural Investment

Agriculture is often neglected in development strategies which

can also be manifested in terms of inadequate infrastructure
and social over head capital.

DEVELOPMENT ECONOMICS TWO , CHAPTER FOUR 23

4.5. Agricultural strategies and the role of government
in the agriculture sector

1) Improving small scale agriculture

This can be achieved through enhancing technologies and

innovations in farm practices so as to level of outputs and
productivity.

2) Providing economic incentives for all farmers

indiscriminately

The government has to provide different economic

incentives such as low interest credit, fertilizers, chemicals
etc to all farmers without favoring large scale farmers.

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3) Adapting to new opportunities and new constraints

Try to expand the agricultural opportunities from enhancing

cereal productivity into high value added activities such as
horticulture (fruits, vegetables and cut flowers) and
aquaculture which provide good opportunities for high value
exports along with coffee and spices.

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