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AGRICULTURAL TRANSFORMATION ANDDEVELOPMENT.

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At different stages of development, differentconstraints on progress operate.

These factors may be sociological, politicaland economic

One of the most critical factors in the earlystages of development is the health of theagricultural sector.

Without a surplus of food production over

subsistence needs, there would be no surpluslabour, no saving and no food to feed labourworking in alternative activities.

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In many developing countries today,agriculture is still extremely backward.

Low productivity is a major cause of povertyand retards development of the wholeeconomy.

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Two reasons why land as a separate factor ofproduction tends to be subsumed into capitalin the production-function approach toeconomic growth.

1. The traditional classical notion of land as afixed factor of production.

2. The practical fact that land without theapplication of capital is of little use.

The quality of land can affect the level ofagricultural productivity in the early stages ofeconomic development.

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Rising agricultural productivity permits therelease of labour from agric to industry, which inturn leads to increasing returns, rising per capitaincome and greater capital accumulation.

Given the dominance of the agric. Sector in theeconomic structure of developing countries, suchfactors as the physical attributes of land, theland-tenure system, the ratio of labour to land

and the extent of natural resource endowmentsare likely to exert a major influence on the speedof development.

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Agric makes four major contributions to theprocess of economic development;

1. Product contribution

2.

Factor contribution3. Market contribution

4. Foreign Exchange contribution

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This refers to the fact that agriculture mustsupply food above subsistence needs in orderto feed labour working in alternativeoccupations.

In other sectors of the economy are to bedeveloped, labour must be fed, and this cannot be done by imports until export activitieshave been developed to provide foreign

exchange to pay for the imports. The take-off stage must be preceded by

agricultural revolution

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The difference b/n total agricultural output andsubsistence needs is called the marketablesurplus.

Economic progress in the early stages ofdevt

requires an increase in the marketable surplus,which in turn requires an increase in labourproductivity.

Marketable surplus is a very important concept inthe neoclassical model of the devt process,

because unless the marketable surplus rises asthe demand for food increases, the price of foodwill tend to rise.

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This will turn the terms of trade againstindustry; higher wages will have to be paid toworkers in industry, which will eat into profitsand capital accumulation.

The marketable surplus therefore becomesthe major constraint on industrial growth.

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Factor contribution consists of two parts;1. Labour contribution

2. Capital contribution

Labour for industry and other activities mustcome from agriculture, but can be releasedonly if productivity in agric rises.

The existence of surplus labour plays a major

role in the development process. The lowerthe cost of industrial labour, the faster therate of industrial expansion is likely to be.

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But this depends on the rate at which theagricultural sector is releasing labour.

Industrial development today in many of therapidly growing countries of South-East Asia is

being fuelled by cheap labour drawn from agric. Also agric is a source of saving and capital

accumulation for industrial development. Thesaving can be voluntary or involuntary.

Voluntary by rich landlords and peasant farmers Involuntary govt taxing the sector and also

through the pricing policies of marketing boards.

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The general policy in developing countries ofkeeping agric prices low has been justified ontwo grounds;

1. Low prices benefit the industrial sector

2. Peasant farmers have limited horizons anddo not respond to incentives, if prices arehigher they may actually produce less.

thus the policy of keeping agric prices low hasdone enormous damage to the agric sectorin developing countries

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The demand from agriculture must be themajor source of autonomous demand forindustrial goods.

If industry is to grow and prosper, it must beable to sell its goods.

In the early stages of development, the agric.Sector is likely to provide the largest market

for industrial goods. Thus complementarily b/n agricultural and

industrial growth.

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The 1979 WDR remarked that a stagnantrural economy with low purchasing powerholds back industrial growth in manydeveloping countries

Also the 1982 WDR documented the closecorrespondence across countries b/n agric.Devtand industrial growth: fast growth ofindustry and sluggish agric. Were evident

only in countries with oil or mineral-basedeconomies such as Algeria, Ecuador, Mexico,Morocco, Nigeria etc.

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A precondition for rapid industrial growth is arapidly expanding agric. sector at least in termsof purchasing power.

The pricing of agric. goods relative to industrial

goods is known as the agricultural or industrialterms of trade.

There needs to be an equilibrium terms of tradeb/n the two sectors to achieve balanced growthso that industrial growth is not constrained from

supply side by agric prices being too high orconstrained from the demand side by agric pricesbeing too low.

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In the early stages of development, the onlysource of foreign exchange is likely to beprimary commodity exports.

Agric therefore makes an important foreignexchange contribution.

Foreign exchange is a resource just likesaving. It provides access to goods that can

not be produced domestically or can only beproduced at enormous cost in an opportunitycost sense.

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Imports are made possible by exporting agricproducts.

If the goods are investment-type goodsnecessary for the development process, thenimports will be very productive.

There are many countries that have grownfaster given the greater availability of foreign

exchange.

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Overall agricultural productivity in developingcountries is less than 1/20 of the level indeveloped countries, and there are evenbigger differences b/n countries.

In many countries, output per head is barelyenough to meet subsistence needs.

Some progress has been made in recent yrswith particular crops in particular countries

but the performance is still disappointing,and the lack of marketable surplus is holdingback development on a wide front.

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1. Geography2. Land-labour ratios

3. Existence of urban bias in the treatment ofagriculture

4. The allocation of resources

5. Unfair competition in the world markets

6. The structure of rural societies

7. The organization of agriculture8. The land-tenure system

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Climate and terrain determine to a largedegree what goods a country can produce,the amt. of cultivatable land available perinhabitant and the lands fertility.

To some extent the application of capital toland can compensate for unfavourable naturalforces (obviously there some limits)

Differences in natural conditions and thefertility of the soil can be no more than apartial explanation of low productivity.

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Low productivity may be associated with ahigh population density and a high ratio oflabour to land.

Productivity might be increased substantially

with small applications of capital in the formof drainage schemes, fertilizers etc.

On the other hand, low productivity may beassociated with the opposite situation of a

high ratio of land to labour, so the onlysolution in the injection of larger doses ofcapital for labour to work with.

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1.The holding down of agricultural prices to favour theindustrial or urban sector

2. The concentration of investment in industry

3. Tax incentives and subsidies to industry

4. Overvalued exchange rates, which keep the price ofindustrial inputs and the domestic price ofagricultural exports low.

5. Tariff and quota protection for industry which raisesthe prices of fertilizers, seeds and equipment.

6. Greater spending in urban areas on education,training, housing, nutrition and medical provision,which all affect productivity and the quality of life.

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This takes the form subsidies that developedcountries give to their farmers and the tariffs thatdeveloped countries impose on importedagricultural products from developingeconomies.

This leads to over-production and the surplusesare then frequently dumped on the markets ofdeveloping economies, impoverishing domesticfarmers.

Also farmers in developing economies are notable to compete in their own markets, let aloneoverseas markets.

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In developing country, rural society consistsof rich landowners, peasant, sharecroppers,tenants and labourers.

Apart from the landowners, most others inthe rural sector are extremely poor.

Because they live on the margin ofsubsistence they tend to be risk averse.

They may be reluctant to make the changesnecessary to improve productivity because ifthings go wrong it will spell disaster

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In developing countries, peasant subsistencefarming is a traditional way of life, andattempts to raise productivity will alter thatway of life and necessarily involve risk.

Even if they wanted to change the traditionalways of doing things, there is the seriousconstraint of lack of access to credit tofinance the purchase of new seeds, fertilizers,pesticides, drainage schemes etc.

So no incentive to change

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The system by which land is held and farmed is aserious impediment to increased productivity inmany developing countries.

The structure of peasant agric. differs b/n

countries largely for historical reasons but thestructures have many common xtics that keepproductivity low.

Agriculture is based on a combination of large

estates (latifundios), owned by a wealthy few andsmall farms (minifundios), which are often sosmall that they cannot support a single family.

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In Brazil, 90% of land is owned by 15% oflandowners.

In Asia because of the high populationdensity, the major problem is that too manysmall farms are operated by sharecroppersand tenant farmers, the land being owned byabsentee landlords.

As families multiply and debts rise, land iscontinually sold and subdivided leading to avery inefficient structure.

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This involves land rights and security of tenurefor tenants. The scope for land reform remains enormous in

Latin America where 1% of the landowners own70% of the land, while 10% of the largest farms

occupy 80% of the land. In Africa, land reform is not always successful.-

Kenya, Zimbabwe etc Land reform may be a necessary condition for

increased productivity but not a sufficient

condition. It needs to be accompanied by other measures of

agrarian reform.

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This is not about land reform or price policy. The transformation of traditional agriculture is

also dependent on new inputs. The low productivity of farm labour is due more

to an absence of specific factor inputs such asResearch and Education, than to a shortage ofreproducible capital as such.

Also the need for the so-called GreenRevolution.

Biotechnology has the potential to raiseproductivity substantially and to reduce famineand malnutrition.

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The industrial sector adds to the demand forgoods produced by agric and absorbs surpluslabour which may raise productivity in agric.

In turn, the agric sector provides a market for

industrial goods out of rising real income,makes a factor contribution to devt throughthe release of resources if productivity risesfaster than the demand for commodities.