Agriculture in

Developed and Developing

Countries

Dr. Amruta Suryawanshi

Gokhale Institute of Politics and Economics
 Developed and developing countries differ w.r.t. structure and organization
of agriculture and the behaviour of agricultural producers.
 In Developed Countries,
1) Agriculture is like an industry : Profit maximisation

2) Farmers are commercially oriented

3) Technically well informed

4) Financial marketing and advisory services- both public and private.

 In LDCs, agriculture is dualistic in nature: Large workforce making a small

contribution to output and market & Small workforce making a large contribution
to output and market . Coexistence of Traditional and Modern Sector.
Attributes of Traditional Agriculture

1) Agricultural production unit

2) Resource structure

3) Labour reward system

4) Labour market dualism

5) Access to information and technological choice

6) Access to non-labour resources

7) Unstable farming environment

 1. Agricultural Production Unit
 Purely subsistent agriculture:

i) Size of land holding is very small.

ii) High degree of self-sufficiency- saved seed, manure, rainfall

iii) Concern and primary motivation - food security for family.

 Semi subsistent agriculture:

i) Farmer is both household manager and businessman.

ii) The amount of marketed portion of total output may either be

planned or unplanned.
 Number of Holdings (in '000)
Size
Groups 1970-71 1980-81 1990-91 2000-01 2010-11 2015-16

Marginal 36200 50122 63389 75408 92826 99858

(50.98) (56.39) (59.44) (62.88) (67.1) (68.52)

Small 13432 16072 20092 22695 24779 25777

(18.92) (18.08) (18.84) (18.92) (17.9) (17.69)

Semi- 10681 12455 13923 14021 13896 13776

Medium (15.04) (14.01) (13.06) (11.69) (10.00) (9.45)

Medium 7932 8068 7580 6577 5875 5485

(11.17) (9.08) (7.11) (5.48) (4.2) (3.76)

Large 2766 2166 1654 1230 973 831

(3.90) (2.44) (1.55) (1.03) (0.7) (0.57)

All Sizes 71011 88883 106638 119931 138348 145727

(100.0) (100.0) (100.0) (100.0) (100) (100)
 Operated Area (in '000 ha)
Size
Groups
1970-71 1980-81 1990-91 2000-01 2010-11 2015-16

Marginal 14599 19735 24894 29814 35908 37960

(8.99) (12.05) (15.04) (18.70) (22.5) (24.16)

Small 19282 23169 28827 32139 35244 36435

(11.88) (14.14) (17.42) (20.16) (22.1) (23.19)

Semi- 29999 34645 38375 38193 37705 37168

Medium (18.48) (21.15) (23.19) (23.96) (23.6) (23.65)

Medium 48234 48543 44752 38217 33828 31367

(29.72) (29.64) (27.04) (23.97) (21.2) (19.96)

Large 50064 37705 28659 21072 16907 14212

(30.84) (23.02) (17.32) (13.22) (10.6) (9.04)

All Sizes 162318 163797 165507 159436 159592 157142

(100.0) (100.0) (100.0) (100.0) (100) (100)
 Average Size of Holding (Hectare)
Size
1976-77 1985-86 1995-96 2005-06 2010-11 2015-16
Group
Marginal 0.39 0.39 0.40 0.38 0.39 0.38
Small 1.42 1.43 1.42 1.38 1.42 1.41
Semi-
2.78 2.77 2.73 2.68 2.71 2.70
medium
Medium 6.04 5.96 5.84 5.74 5.76 5.72
Large 17.57 17.21 17.21 17.08 17.38 17.10
All sizes 2.00 1.69 1.33 1.23 1.15 1.08

Source: Agricultural Census, various issues, Department of Agriculture and Cooperation, GOI.

• 86.2 % farmers are Marginal and Small having less than 2 hectares of land
• They occupy 47.3 % of area
• Average size of holding declining over the years and is presently 1.08 hectares
 1%
4%
9% Marginal (Below 1 Hectre)

Small (1-2 Hectre)

18% Semi Medium (2-4 Hectre)

Medium (4-10 Hectre)

69% Large (10 Hectre and above)

 2. Resources Structure

 Land and labour are dominant factors of production in traditional

agriculture.
 Land is scarce – Population pressure on agriculture.
 The relative scarcity of land is signified by high rent. Whereas relative
abundance of labour is signified by ‘low wages’.
 The combination of scarce land and plenty of labour favours labour
intensive system of agriculture.
 3. Labour reward system
 Family enterprises are characterised by work and income sharing.
 Wage is set endogenously by the average productivity of the family
 NOT by the marginal productivity of labour.
 Labour has low opportunity cost.
 Disguised employment in agriculture.
 In contrast, when agriculture is commercial, the farmer will hire labour till
the value of marginal product is equal to wage rate which is exogenously
determined by market forces.
 4. Labour Market Dualism

There exists a substantial gap between modern and traditional sector wage
rate but despite low wages large number of workers remain in TA?

1) The costs of moving > The expected wage premium.

2) A potential migrant discounts the higher modern sector wage by the

probability of remaining unemployed (Harrod Domar theory).
 5. Access to information and
technological choice
 Farming in Traditional agriculture is based upon technology which is –
 Simple (e.g. human draught-power, or perhaps animal power is used
instead of machines)
 Well tried (have been used by farmers for generations) and
 Self-sufficient, (with little reliance on outside suppliers of materials or
services)
 Farmers in TA are ignorant of modern farming methods and technology
they use appears to be primitive. Technological stagnation is regarded as
definitive characteristics of TA
 The lack of an
appropriate
alternative
technology

Barriers to
adoption due Reasons for Farmers’
to other ignorance of
Technological ‘better’
market
failures methods
stagnation

Lack of
motivation –
the risks and
costs of
adoption
 Lack of an appropriate alternative technology

 Traditional Agriculture is characterised by conditions of :

Very small scale of production, poor literacy levels , plentiful labour and
very scarce capital.
 It is difficult to substitute capital for labour. Hence farmers in LDCs do not
resort to alternative technologies which are better adapted on large scale,
expensive and labour displacing.
 The hallmarks of a more appropriate agricultural technology might include
i. Technical Simplicity
ii. Low cost
iii. Capacity to raise farm productivity without displacing labour.
 Barriers to spread of technological information

 Remoteness and Inaccessibility :

Farm population is located in remote interiors, inaccessible to geographical

isolation, quality of roads, under provision of means of communication and
overall poor infrastructure
 Poverty:

Poverty levels of farmers serve as a constraint in investing in technology.

Thus a vicious circle is created.

Farmers fail to adopt better methods because they can’t afford to travel to find
out about them.
 Government Side:
1) Difficulty of recruiting and training adequate number of agricultural
extension personnel.
2) High cost of disseminating advice to large number of small farmers, in
remote parts of country, subject to budgetary constraints.
 Private Sector: The second potential source of agricultural advice is the private
sector but it is confronted with the same high costs as government and the
benefits are very uncertain, being profit oriented, the private sector is more
likely to reject the option.
 In developed countries farmers get advice from private as well as public
sources. No resource constraint, good infrastructure
 Inadequate motivation for
adoption
 Risk of adoption.

i) Includes potential cost of making mistakes due to inexperience.

ii) Margin of error is lower in repeating familiar tasks.

 But why should risk deter farmers? (After all , profit is a reward for risk)

1. Due to biological nature of agriculture, farmers are exposed to numerous

inescapable risks like pests, diseases , extremes of weather
(rain , temperature , wind) etc.

2. So, they choose not to expose themselves to further avoidable risks such
as growing an unfamiliar crop by untried method for unknown
market as it may result in low yield / crop failure.
3. Consequences of low yield:

For,

i) Subsistence farmer : Starvation

ii) Semi-subsistence : Loss of money income → Low

purchasing power

 So, it is completely rational for subsistence and semi-subsistence farmers

to be risk averse.
 High cost & low saving
Even though a farmer is convinced that a new method of production is of
potential benefit to him but he may still be unable to fund its adoption
due to lack of savings.
 Capital market imperfections.

• Market is biased against small farmers. It over-estimates the risk of

lending to agriculture.

• Hence, market may either be unwilling to lend to agriculture at all, or

only at a risk premium that farmers are unable or unwilling to pay.
 Barriers to adoption due to market failures

 Bottlenecks in the supply of physical inputs

Inadequate domestic manufacturing capacity, import constraints,

distribution network's inability to cope with an increased demand for its

service.
 Preferential access:

In contrast to the strong bargaining position of modern sector farmers in

competing for scarce input supplies, farmers in the traditional sector are
commonly found to be in a position of relative economic and political
weakness.
 Consequences of technological
stagnation
 Poverty is the price of technological stagnation.
 Poverty → malnutrition and ill-health → feedback effects upon
labour productivity → inevitable adverse consequences for crop yields
 Poverty causes other social ills:
1) High infants and neonatal mortality

2) Parent tend to `over-insure' against the risk of losing their

children by premature death → High fertility rate → Population rise →

→ Small farm size restricts use of technology.

The problem of poverty in traditional
agriculture is intensified by
 6. Access to Non-labour Resources
 Pronounced inequality in the distribution of resources - particularly land.
 Land distribution coincides with distribution of political and economic
power. (There is close and direct correlation between farm size (land area)
and family income)
 Diminishing returns to non-land inputs, prevent farmers from fully
compensating for the handicap of small farm size by means of intensive
cultivation.
 Modern sector farmers have preferential access to the land market. They
rent land relatively cheaply, small-scale farmers in the traditional sector
pay more than the competitive equilibrium rent due to their weak
bargaining position.
 A parallel distortion occurs in capital markets. Modern sector farmers can
borrow more cheaply.

{ The contention that the prices of land and capital are raised against small
farmers is backed by empirical evidence from a number of LDCs (Griffin,
1979). }
 7. Unstable farming environment
 Yield Uncertainity:
Due to biological nature agriculture is exposed to extremes of weather,
pests, diseases. The main effect of an unstable physical environment is
yield uncertainty.
 Economic / Price uncertainty:
1. Farmers are powerless to control shifts in demand and supply.

2. Transport, handling cost, wastages in transit are serious obstacles to the

smoothening of price disequilibria between markets.

3. Moreover due to the perishability and the burden of storage costs, there is
little scope for accumulating stocks to bridge periods of low prices.
 Summary

Features of traditional agriculture:

Population
Pressure
Scarce Land
Unequal
Distribution

Abundant, cheap labour, disguised unemployment

Low savings
Poor access to capital
Market
Imperfections
 Technological
stagnation

Aversion Low
to risk
productivity

Poverty Low farm

income
 Share of selected countries in
employment in agriculture
Burgundi-92.02%
Somalia-83.11%
Mozambique-70.33%
Nepal-65%
China-25.36%
Spain-4.09%
Australia-2.56%
Canada-1.45%
USA-1.34%
Singapore-0.73%
 Share of Employment in
Agriculture (%)
High Income -3%

Upper Middle Income-21%

Middle Income-29%

Low Middle Income-39%

Low Income-59%
 1981-82 1991-92 2001-02 2011-12 2021-22
Sector Employme Employme Employme Employme Employme
GDP GDP GDP GDP GDP
nt nt nt nt nt

Primary 68.87 41.8 66.75 34.92 59.9 27.3 42.74 14.39 42.60 18.8

Secondary 13.48 21.58 12.77 24.48 11.9 24.28 23.79 31.46 25.12 28.2

Tertiary 17.65 36.62 20.5 40.6 28.2 48.42 33.48 54.15 32.28 53.00

Share in Employment Share in GVA

1. Agriculture 1. Services
2. Services 2. Industry
3. Industry 3. Agriculture
Distribution of Workforce Across Economic
Sectors From 2011 to 2021
 Lewis model
Dual-sector model - W. Arthur Lewis
 Assumptions:

1) Existence economic dualism.

2) Existence of disguised unemployment in the agricultural sector.

3) These workers are attracted to the growing manufacturing sector where

higher wages are offered.

4) The model assumes that profits will be reinvested in the business .

Sources of unlimited supply of labour in LDCs.

1) The high birth rate in LDCs leads to severe increase in population.

2) Due to disguised unemployment, people are prepared to work even at less

than subsistence wages.

3) The women in UDCs do not work, but they just perform house-hold
duties. Thus they also represent unemployment.
 Lewis model

Lewis Turning Point – Unlimited supply of labour runs out,

Wages ↑, Profits ↓
 Criticism

1) Whether or not capitalist surplus will be used constructively will depend

on the consumption- saving patterns.

2) If industrial development involves more intensive use of capital than

labour, then the flow of labour from agriculture to industry will simply
create more unemployment.

3) The process of exhaustion of surplus labour may come to an abrupt end,

before industry reaches the turning point because of Govt intervention or
trade union activities.

4) Lewis ignored the sectoral shifts and the costs associated with that.
 Sectoral shift in Indian Economy

 As a country develops, the workforce moves out of agriculture. Higher

wages in other sectors attract the labour force.

 This is not happening in India in a big way.

 Industrial sector is not able to absorb the excess labour in agriculture.

 Agriculture suffers from disguised employment.

 Most of the workforce out of agriculture has moved into the service sector

as informal, casual labour.