Agricultural Transformation and Rural Development

1. Agricultural Transformation and Rural Development

2. Overview Agriculture�s role in Economic Development Self-sufficiency and Dwindling Food Supplies Land Tenure and Reform Technology of agricultural production Mobilization of Agricultural Inputs Rural Development Efforts Agricultural Price Policy

3. Introduction Understanding the nature of agriculture is fundamental to understanding the development. Income distribution, extreme poverty and the rural poor Human capital: Nutrition, food production and distribution Contribution of agricultural exports to development

4. Agriculture is one industry among many, but it is an industry with a difference. At early stages of development, this sector employs far more people than all others. Agricultural activities have existed for thousands of years, and so the rural economy is �tradition bound�. Crucial importance of land as a factor of production and the influence of the weather/climate. It is the only sector that produces food and there are no substitutes for food.

5. Agriculture�s role in Economic Development Most of the people in poor countries make their living from the land. Most developing countries must rely on their own agricultural sectors to produce the food consumed by their people Farmers must produce enough to feed themselves as well as the urban population. The rural sector is virtually the only source of increased labour for the urban sector.

6. The agricultural sector can be a major source of capital for modern economic growth. Agricultural exports are a key source of foreign exchange with which to import capital equipment and intermediate goods. The rural population is an important market for the output of the urban sector.

7. Self-sufficiency Food self-sufficiency and the National Defense argument Dependence on food imports Food as a strategic good

8. Dwindling World Food Supplies History does not support the view that world supplies of exportable food are steadily diminishing.

9. The issue is not about running out of surplus land, but our ability to increase the yields of existing arable land to meet the needs of an increasing population. Research shows that the planet is not close to its biological limit. The real danger of a long-term food crisis arises from a different source � internal social and economic barriers to technical progress in agriculture.

10. Food Supply and Famine Famine is far more a problem of food distribution than of food production. The central issue is not what caused the crop failure (drought or civil war) but why no one intervened to assist those who lost the means to survive.

11. Market forces are often not sufficient to the task of relieving a famine. Governments and NGOs must play a role. Famines rarely happen where a nation is democratic or governed by some other form of pluralistic politics, where there are open channels for communication and criticism such as a free press. Mechanisms to end starvation: Free food shipments to distribution points Food-for-work programs The distribution problem must be tackled before increasing agricultural production.

12. Land Tenure and Reform The property rights that matters most in the agricultural sector is the right over the use of land. If that right is well defined as well as exclusive, secure, enforceable, transferable, then farmers have the incentive to invest and work the land efficiently. Prevailing land-tenure arrangements are important for the welfare of farming families and for political stability.

13. Patterns of Land Tenure Land tenure refers to the way people own land and how they rent it to others. Serfdom: prevails in only a few remote areas. a local aristocrat owns a piece of land and allows local peasants to cultivate it in exchange for a part of the harvest. Peasants and their families are often tied to the land for life. Large-scale modern farming or ranching Large crop or cattle-raising acreage

14. Plantation agriculture Latifundos

15. Family farms or independent peasant proprietors Tenancy

16. Sharecropping Absentee landlords

17. Communal farming Collectivized agriculture

18. Tenure and Incentive Land tenure arrangements have a major impact on agricultural productivity. From an incentive standpoint, the family-owned farm would seem to be ideal, however they do not benefit from economies of scale. When property rights for the farmer are not well defined or secure they have little incentive to invest in improvements or even to maintain existing irrigation and drainage systems. Farm labourers are paid wages and typically do not benefit at all in any rise in production. One solution is piece-rate pay at harvest time. Communal and collectivized farming suffer from the �free-rider� problem because property rights are not exclusive. Work-points in collectivized farming

19. Land Reform Reform of rent contracts Rent reduction Land to the tiller with compensation Land to the tiller without compensation The Politics of Land Reform The main motive is usually political Mexico, China and Zimbabwe Land reform legislation is extremely difficult to enforce in the absence of deep commitment from the government.

20. Land Reform and Productivity Land reform has greatest positive impact on productivity where the previous system was one of small peasant farms with high rates of insecure tenancy and absentee landlords. Land reform has the opposite impact if it results in the breaking up of large, highly efficient modern estates or farms and redistribution of land to small peasant proprietors with little knowledge about modern techniques and the lack of capital to pay for them. Land Reform and Income Distribution Usually there is only impact on income distribution if the land is taken from the landlords without compensation or without anything close to full compensation.

21. Technology of Agricultural Production Traditional Agriculture Evidence suggest that these farmers are efficient given existing technology Traditional technology changes very slowly The techniques here are not stagnant but evolve over time with experimentation. Slash-and-Burn Cultivation Trees are slashed and fire is used to clear land. This is a form of shifting cultivation or farm fallow cultivation.

23. The Shortening of the Fallow The evolution from slash-and-burn to permanent cultivation, growing one crop on a piece of land once per year and shortening the period of time that the land is left fallow. Crops are rotated and fertilizer is assed to restore nutrients to the soil. Farming within a fixed technology The improvements in technique that occur happened over too long an interval of time to have anything but a marginal impact on rural standards of living.

24. Modernizing Agricultural Technology Specific inputs and techniques can be combined to increase production. Mobilization of agricultural inputs and techniques There is no universally best technology for agriculture Japan vs. United States

25. The Mechanical Package Tractors, combines, and other forms of machinery are used primarily as substitutes for labour that has left the farm for the cities.

26. The Biological Package and the Green Revolution Yields are raised through the use of improved plant varieties such as hybrid corn or new varieties of rice. The dramatic effect on yields brought about by the new varieties is referred to as the Green Revolution. New varieties raise yields only if combined with adequate and timely water supplies and increased amounts of chemical fertilizer.

30. Mobilization of Agricultural Inputs In what ways can a rural society provide itself with the necessary amounts of labour, capital and improved techniques? Rural Public Works Projects Mobilization of labour to create rural capital (e.g. roads and irrigation systems) Difficulty lies in the lack of connection between those who did the work and those who reap the benefits.

31. Rural Banking and Micro Credit Farmers often need credit to take full advantage of their production opportunities. They typically face unfavourable interest rates. Rural money-lenders often charge over 100% interest. Urban commercial banks are usually absent. Women in particular have difficulty obtaining credit when they farm land registered in the name of an absentee husband.

32. The Grameen Bank Model It targets the poorest of the poor, particularly rural women No collateral is required The borrower is required to join a group from the same village where members provide support to each other and ensure repayment. Bank personnel work with the poor women. The bank is not profitable on its own and often requires subsidies from international aid agencies. Those who repay their loans are eligible for further credit.

33. Bank Raykat Indonesia (BRI) Revamped incentive system for rural lending and saving Charged interest rates that cover costs and allow for some profit but still much lower than rural money-lenders. Led to a large rise in rural lending and an even greater increase in rural saving While they did not target the poorest of the poor, farmers and small rural businesses that previously had no access to credit were able to obtain loans. System survived the Asian financial crisis of 1997.

34. Extension Services These institutions provide the key link between research laboratories or experimental farms and the rural population. Relies heavily on the extension worker�s ability to communicate and instill trust in the farmers.

35. Credit Cooperatives Small farmers pool funds from which one or two farmers may borrow. Farmers take turns borrowing. Those not borrowing but supplying funds earn interest and are encouraged to save more. Farmers� savings tend to be small and the cooperatives financially weak. Economic, social and political conflicts in the village may make it impossible to maintain the cooperative.

36. The Development of Rural Markets In developing countries, the existence of an effectively operating market cannot be taken for granted. The to an increasing role for the market is specialization, and specialization depends on economies of scale. In LDCs, the single greates barrier to taking advantage of economies of scale is transportation costs. Therefore, improvements in the transportation system can have a major impact on productivity.

37. Farmers in LDCs often limit their dependence on the market because of the risk it entails. Farmers face uncertainty in the price of crops between planting and harvesting. Most farmers avoid becoming dependent on a single cash crop and instead devote part of the land to meeting family food requirements. Well-intentioned government intervention can worsen matters. For high-cost rural trading network, the government often substitutes an even higher-cost bureaucratic control of the movement of goods.

38. Roadblocks and Speed-bumps Land reform, the creation of effective rural credit, marketing and extension systems as well as government investment in infrastructure, especially agricultural research take a long time. Changes in land tenure can be blocked by powerful interests. New plant varieties suitable to local conditions may take decades to develop. Government intervention in agricultural pricing can a have an immediate and profound impact.

39. Agricultural Price Policy The Multiple Role of Prices Prices paid to farmers in relation to prices paid for inputs have a major impact on how much is produced Prices combined with quantities sold determine farmers� cash income. Prices of agricultural products are major determinants of the cost of living of urban residents The prices of agricultural products are often controlled by government marketing boards to earn profits for the government (in a disguised form of taxation).

40. The Impact of Subsidies Conflict between urban consumers and rural producers over agricultural prices. Urban residents are in a better position to lobby the government to their side resulting in depressed prices for farmers. Subsidizing farmers in developed countries results in surplus production which is often exported at below world market prices to developing countries, further depressing prices. Overvalued Exchange Rates