ROLE OF AGRICULTURE IN

ECONOMIC DEVELOPMENT
INTRODUCTION

 As the per capita income increases the share of agriculture in a country's labor force and total
output declines in both cross-section and time series samples.

 The declining importance of agriculture is inherent in the development process, whether in socialist
or capitalist countries, Asian, Latin American, or African, currently developed or still poor.

 On the other hand prevailing neo-classical view is that agricultural sector is used as a generating
sector for the industrial modernization

 Clark and Kuznets provided facts regarding the role of agriculture sector to drive economic growth
in less developed countries. On this basis neo classical termed agriculture sector as a “black
box”( internal workings are hidden or not readily understood.)
 The need for rapid agricultural growth and for the decline in the agricultural sector's share
of output & the labor force are not contradictory, of course, but the apparent paradox gave
rise to a widespread misperception that agriculture is unimportant.
 The paradox over the agricultural transformation occurs at this point. Just as countries
learn how to institutionalize the process of rapid technical change in agriculture, its
product no longer has high social value and therefore all rich countries protect their
agricultural sectors (farmers) from international competition. Investment in agriculture
is the quickest and surest way for rapid economic recovery and reducing poverty
WHY AGRICULTURE SECTOR IS
NEGLECTED?
Upon closer examination, it is not paradoxical that agricultural growth leads to agricultural
decline (IMPORTANCE). This is mainly because of:

 The Engel’s Law which is an observation in economics stating that as income rises, the
proportion of income spend on food falls, even if actual expenditure on food rises. In
other words , the income elasticity of demand FOR food is between 0 and 1.
PATTERN OF EXTRACTING RESOURCES
FROM AGRICULTURE TO INDUSTRY
 The historical record after the Second World War shows that most of the countries were
reluctant to invest in agricultural development.
 According to Bairoch :
Countries do not like to make investments in the early stage of agricultural transformation
when other structural conditions of development are making a “take-off” more difficult
 Based on data only up to the early 1970s, Bairoch's pessimism reflects the widespread
neglect of agriculture in many development efforts in the 1950s and 1960s, as well as the
shortfalls in food production that triggered the world food crisis in 1973-1974.
 A similar pessimism based on a quite different reading of the historical record is provided
by scholars working in the Marxian tradition
 International comparison in the growth rates of labor productivity in agriculture and manufacturing,
1960 (1958-62averages) to 1980(1978-82 averages)
Labor productivity growth rate (%/Year)

Agriculture (1) Manufacturing (2)

Developed countries:
United states 6.3 3.2
United kingdom 5.5 2.6
France 6.4 4.2
Germany(F.R) 7.7 4.1
Japan 5.3 6.7
Developing countries:
Korea 4.0 7.5
Philippines 3.2 3.5
India 1.3 2.1
Sources: FAO, production yearbook UN ,Yearbook of Industrial statistics ;ILO, Yearbook of labor statistics ; OECD, Labor Force Statistics..
Hayami (1986,p.10)

Table is drawn from a paper by Hayami (1986), shows that the recent productivity record for even slowly growing developing
countries ( Philippines and India) have a mild reversal of the ‘traditional’ pattern in which growth in the labor productivity in
agriculture exceeds that of labor productivity in manufacturing.
IMPLICATIONS OF TRENDS IN THE
TABLE
 Firstly all DC’s, in addition to being industrialized have a developed agriculture sector as
well and hence agricultural development is a necessary corollary to development

 Secondly, the agriculture sector in most LDC’s tends to be neglected and inefficient one
and therefore the need to understand the reasons for this and to take concrete measures to
improve agriculture productivity and efficiency.
AGRICULTURE POLICY AND STRUCTURAL CHANGE

 Hayami and Ruttan attempts to develop a model of agricultural development in

which the behavior of not only private- but also public-sector supplies of scientific
knowledge and technology are treated as endogenous rather than exogenous to the
economic system.
 According to Timmer all three areas i.e. research, human capital investment and rural
infrastructure needs government investments.
 Investment in agriculture is the quickest and surest way for rapid economic recovery and
reducing poverty
POLICIES

 The right mix of public decision making (government) and its effect on private decision
making (farmers) is the key to the agricultural sectors success
 A host of political problems arise if low farm incomes are induced by EXTRACTION OF
RESOURCES , hence price supports have been the most popular in developed countries;
LOWER THAN MARKET PRICES.
 Countries need to work on the credibility of its economic and political institutions when it
comes to supporting and developing agricultural sector and they need to implement proper
and accountable checks and balance.
FIVE ROLES OF AGRICULTURE IN
ECONOMIC DEVELOPMENT

1. Increase in the supply of food for domestic consumption

2. Release labor for industrial employment
3. Enlarge the size of market for industrial output
4. Increase the supply of domestic savings
5. Earn foreign exchange
THE ROLE OF THE AGRICULTURAL
SECTOR
 The agricultural sector provides a large chunk of the national income and has a large
number of participants
 It has strong forward and backward linkages with the rest of the economy
 Agriculture plays the role of a resource reservoir(materials pool)
 Agriculture sector contains the potential surpluses of labor time, food output and saving
capacity and requires only appropriate public policies for their release
 If in an economy agricultural output is being raised by a combination of investment and
technical progress, part of farm output and income can be made available to non-
agriculture sectors.
1. The constraint in agriculture development is not the result of limited natural resources or the lack
of technical ability to increase output; rather it is the restriction which hinders the suitable
technical and institutional modernizations thus affecting growth.

2. The agriculture transformation rests on:-

 Suitable new technologies

 Accommodating rural institutions

 Motivation and rewards to farmers for hard work

 Security against risk from natural or market fluctuations

3. The role of the government is to promote the transformation process through investments
and provide it protection through policy making.

4. Rapidly growing economies are forced to heavily subsidize the farmers at the cost of
others.