Agricultural Transformation and Rural Development © 2009 Pearson Addison-Wesley. All rights reserved. Chapter 9 ... than share of labor force in ... Copyright © 2009 Pearson Addison-Wesley

Copyright © 2009 Pearson Addison-Wesley. All rights reserved.

Chapter 9

Agricultural

Transformation and

Rural Development

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 9-2

Rural Poverty

• 2/3 of the World’s Poor People live in Rural

Areas

• Thus, Reducing World Poverty requires

Reducing Rural Poverty

• Rural People are primarily engaged in

Subsistence Agriculture


How to Reduce Rural Poverty

1. Move to Cities

2. Develop Rural Areas

• Note: 1. And 2. May Be Complementary

• Todaro-Smith:

– Too much 1. (Ch. 7)

– Not enough 2. (Ag has been “neglected.”)

<= 50 50 - 100100 - 140 140 - 200

US Incomes in 1930Percent of National Average

Bureau of Economic Analysis 10/03

<= 50 50 - 100100 - 140 140 - 200

US Incomes in 2000Percent of National Average

Bureau of Economic Analysis 10/03

How Did Regional Inequality

Decline in the USA?

1. Some People Moved To Cities


Urban and Farm Populations

0

20

40

60

80

Perc

ent o

f Pop

ulat

ion

1790 1840 1890 1940 1990

New Old Farm


Figure 9.1 As Countries Develop, the Shares

of GDP and Labor in Agriculture Tend to

Decline, but with Many Idiosyncrasies


Agricultural Growth: Past

Progress and Current Challenges

1. Agriculture employs a larger fraction of

labor forces in poor countries (LDCs)

2. Agriculture’s share of GDP is much lower

than share of labor force in LDCs

3. => Output per worker is much lower in

agriculture: QA/LA << Q/L

I.e. Incomes are lower in Ag than non-Ag

See “Comparing USA CHN IND” on website


Decline in the USA


2. Farms Consolidated (Became Larger)


Number and Size of Farms (Statistical Abstract of US: 1999, 2012)

Farms

(103)

Total

Size

(106 ha)

Hectares

Per Farm

1920 6,454 384

56

(840 mu)

2007 2,201 373

167

(2,610 mu)

Average Farm Values Statistical Abstract of the US: 2010 for 2007

• Sales: $139,482

• Assets: $1,004,089

• Debt: $96,319

• Debt/Asset Ratio: 9.6%


Decline in the USA



3. Farmers Adopted More Advanced

Technology Embodied In Seeds,

Fertilizers, Equipment, Etc.


US Per Acre Wheat Yields

Real Per Bushel US Wheat

Prices (2008$)

US Per Acre Real Wheat

Revenue (2008$)


Figure 9.2 Cereal Yields by World

Region, 1960-2005


Table 9.1 Land Productivity in

Developed and Developing Countries


Decline in the USA




Technology

4. Farmers Got More Education


Adult Illiteracy

0

5

10

15

20

25Pe

rcen

t of A

dults

1900 1950

South Rest of USA


Decline in the USA




Technology


5. Some Family Members Work Off-Farm


Farm Household Income Sources

Other (6)

Int/Div (8)

SocSec (11)NetRent (1)

Wages (51)

Farm (9)

Business (14)


Decline in the USA




Technology


5. Some Family Members Work Off-Farm

Farm – Nonfarm Income Convergence


Farm Household Income

60%

80%

100%

120%

140%

160%

Perc

ent o

f Non

farm

Inco

me

1960 1970 1980 1990 2000Mishra (2003)


T-S: “Integrated Rural

Development”

1. Increase Ag Output In Ways That Benefit

Small Farmers (But see #2.)

2. Transform Small Farms Into Commercial

Farms

3. Investments In Health And Education

(Note: Can Be Used In Rural OR Urban

Areas)

4. Off-farm Employment Creation

So, Same Development Path

as USA?

No, Not Exactly. Economic, Political, Social

and Geographic Institutions Differ Among

Countries and Regions

1. Land Tenure (Property Rights)



Peasant Agriculture in Latin

America, Asia, and Africa

• Latin America: the Latifundio (employ > 12) –

Minifundio (employ < 2) dualistic pattern

– Extreme inequality of land holdings

• Asia: Fragmented and heavily congested dwarf

land holdings

– Very small farms

• Africa: Extensive Cultivation Patterns

– Clear land, farm, wear out soil, move to new land


Table 9.2 Distribution of Farms and Farmland by

Operational Farm Size and Land Tenure Status In

Selected Developing Countries in Asia and Latin

America


Farm Size and Efficiency

• T-S: Latifundios less efficient than medium sized family farms (employ 4 - 12)

• Economist: Why aren’t these broken up by market, since value would increase?

• T-S: Latifundios provide power and prestige to owners, in the context of “rural social and institutional structures”

• Doug: Think Ted Turner or Meg Ryan – Are they primarily concerned with production efficiency?


Agricultural Growth: Past

Progress and Current Challenges

• Transforming Economies: Problems of Fragmentation and Subdivision of Peasant Land in Asia

– Impact of colonial rule in strengthening land tenure systems of private property rights and the consequent rise of moneylenders

– Contemporary landlordism in India and Pakistan involves absentee landlordism and persistence of sharecroppers and tenant farmers

– Rapid population growth resulted in more fragmentation and peasant impoverishment


Figure 9.7 Incentives under

Sharecropping


Sharecropping

• Intrinsically Inefficient due to poor incentives

(Marshall)

• Monitoring approach (Cheung)

• Giving sharecroppers a larger share of the

produce and security of tenure on land can

increase efficiency and investments in land

improvements


Besley & Burgess (2000)

• Land Reform in India 1958-92

– Not (much) redistribution of land titles

– Rather, increase security of tenure

– Reduce power of absentee landlords

• Empirical Findings (i.e. the data say):

• Land Reforms led to Poverty Reduction

– Higher ag wages


Bannerjee and Iyer (2005)

“ Areas in which proprietary rights in land were

historically given to landlords have

significantly lower ag investments and

productivity … than in areas where rights

were given to cultivators.

“These areas also have significantly lower

investments in health and education.”

So, Same Development Path

as USA?

No, Economic, Political, Social and

Geographic Institutions Differ Among

Countries and Regions

1. Land Tenure (Property Rights)

2. Role of Women: Case Study of Kenya

3. Risk Aversion at Subsistence Level



Subsistence Farming: Risk

Aversion, Uncertainty, Survival

• Price And Yield Uncertainty And Limited Access To Credit And Insurance Explains Risk Aversion

• Risk Averse Subsistence Farmers Prefer Technologies That Combine Low Mean-per-hectare With Low Variance To Alternative High Yielding Technologies


Figure 9.6 Crop Yield Probability

Densities of Two Different Farming

Techniques


Subsistence Farming: Risk

Aversion, Uncertainty, Survival

• Efforts To Minimize Risk And Remove Commercial And Institutional Obstacles To Small Farmer Will Increase Adoption Of Modern Technology

• Crop Insurance?


Case Study: Kenya

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Agricultural Transformation and Rural Development © 2009 Pearson Addison-Wesley. All rights reserved. Chapter 9 ... than share of labor force in ... Copyright © 2009 Pearson Addison-Wesley