AGRICULTURAL TRANSFORMATION AND DEVELOPMENT.

At different stages of development, different constraints on progress operate. These factors may be sociological, political and economic One of the most critical factors in the early stages of development is the health of the agricultural sector. Without a surplus of food production over subsistence needs, there would be no surplus labour, no saving and no food to feed labour working in alternative activities.

In many developing countries today, agriculture is still extremely backward. Low productivity is a major cause of poverty and retards development of the whole economy.

Two reasons why land as a separate factor of production tends to be subsumed into capital in the production-function approach to economic growth. 1. The traditional classical notion of land as a fixed factor of production. 2. The practical fact that land without the application of capital is of little use. The quality of land can affect the level of agricultural productivity in the early stages of economic development.

Rising agricultural productivity permits the release of labour from agric to industry, which in turn leads to increasing returns, rising per capita income and greater capital accumulation. Given the dominance of the agric. Sector in the economic structure of developing countries, such factors as the physical attributes of land, the land-tenure system, the ratio of labour to land and the extent of natural resource endowments are likely to exert a major influence on the speed of development.

Agric makes four major contributions to the process of economic development; 1. Product contribution 2. Factor contribution 3. Market contribution 4. Foreign Exchange contribution

This refers to the fact that agriculture must supply food above subsistence needs in order to feed labour working in alternative occupations. In other sectors of the economy are to be developed, labour must be fed, and this can not be done by imports until export activities have been developed to provide foreign exchange to pay for the imports. The take-off stage must be preceded by agricultural revolution

The difference b/n total agricultural output and subsistence needs is called the marketable

surplus.

Economic progress in the early stages of devt requires an increase in the marketable surplus, which in turn requires an increase in labour productivity. Marketable surplus is a very important concept in the neoclassical model of the devt process, because unless the marketable surplus rises as the demand for food increases, the price of food will tend to rise.

This will turn the terms of trade against industry; higher wages will have to be paid to workers in industry, which will eat into profits and capital accumulation. The marketable surplus therefore becomes the major constraint on industrial growth.

Factor contribution consists of two parts; 1. Labour contribution 2. Capital contribution Labour for industry and other activities must come from agriculture, but can be released only if productivity in agric rises. The existence of surplus labour plays a major role in the development process. The lower the cost of industrial labour, the faster the rate of industrial expansion is likely to be.

But this depends on the rate at which the agricultural sector is releasing labour. Industrial development today in many of the rapidly 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. The saving 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.

The general policy in developing countries of keeping agric prices low has been justified on two grounds; 1. Low prices benefit the industrial sector 2. Peasant farmers have limited horizons and do not respond to incentives, if prices are higher they may actually produce less. thus the policy of keeping agric prices low has done enormous damage to the agric sector in developing countries

The demand from agriculture must be the major source of autonomous demand for industrial goods. If industry is to grow and prosper, it must be able 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.

The 1979 WDR remarked that a stagnant rural economy with low purchasing power holds back industrial growth in many developing countries Also the 1982 WDR documented the close correspondence across countries b/n agric. Devt and industrial growth: fast growth of industry and sluggish agric. Were evident only in countries with oil or mineral-based economies such as Algeria, Ecuador, Mexico, Morocco, Nigeria etc.

A precondition for rapid industrial growth is a rapidly expanding agric. sector at least in terms of purchasing power. The pricing of agric. goods relative to industrial goods is known as the agricultural or industrial terms of trade. There needs to be an equilibrium terms of trade b/n the two sectors to achieve balanced growth so that industrial growth is not constrained from supply side by agric prices being too high or constrained from the demand side by agric prices being too low.

In the early stages of development, the only source of foreign exchange is likely to be primary commodity exports. Agric therefore makes an important foreign exchange contribution. Foreign exchange is a resource just like saving. It provides access to goods that can not be produced domestically or can only be produced at enormous cost in an opportunity cost sense.

Imports are made possible by exporting agric products. If the goods are investment-type goods necessary for the development process, then imports will be very productive. There are many countries that have grown faster given the greater availability of foreign exchange.

Overall agricultural productivity in developing countries is less than 1/20 of the level in developed countries, and there are even bigger differences b/n countries. In many countries, output per head is barely enough to meet subsistence needs. Some progress has been made in recent yrs with particular crops in particular countries but the performance is still disappointing, and the lack of marketable surplus is holding back development on a wide front.

1. 2. 3. 4. 5. 6. 7. 8.

Geography Land-labour ratios Existence of urban bias in the treatment of agriculture The allocation of resources Unfair competition in the world markets The structure of rural societies The organization of agriculture The land-tenure system

Climate and terrain determine to a large degree what goods a country can produce, the amt. of cultivatable land available per inhabitant and the lands fertility. To some extent the application of capital to land can compensate for unfavourable natural forces (obviously there some limits) Differences in natural conditions and the fertility of the soil can be no more than a partial explanation of low productivity.

Low productivity may be associated with a high population density and a high ratio of labour to land. Productivity might be increased substantially with small applications of capital in the form of drainage schemes, fertilizers etc. On the other hand, low productivity may be associated with the opposite situation of a high ratio of land to labour, so the only solution in the injection of larger doses of capital for labour to work with.

1.The holding down of agricultural prices to favour the industrial 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 of industrial inputs and the domestic price of agricultural exports low. 5. Tariff and quota protection for industry which raises the 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.

This takes the form subsidies that developed countries give to their farmers and the tariffs that developed countries impose on imported agricultural products from developing economies. This leads to over-production and the surpluses are then frequently dumped on the markets of developing economies, impoverishing domestic farmers. Also farmers in developing economies are not able to compete in their own markets, let alone overseas markets.

In developing country, rural society consists of rich landowners, peasant, sharecroppers, tenants and labourers. Apart from the landowners, most others in the rural sector are extremely poor. Because they live on the margin of subsistence they tend to be risk averse. They may be reluctant to make the changes necessary to improve productivity because if things go wrong it will spell disaster

In developing countries, peasant subsistence farming is a traditional way of life, and attempts to raise productivity will alter that way of life and necessarily involve risk. Even if they wanted to change the traditional ways of doing things, there is the serious constraint of lack of access to credit to finance the purchase of new seeds, fertilizers, pesticides, drainage schemes etc. So no incentive to change

The system by which land is held and farmed is a serious impediment to increased productivity in many developing countries. The structure of peasant agric. differs b/n countries largely for historical reasons but the structures have many common xtics that keep productivity low. Agriculture is based on a combination of large estates (latifundios), owned by a wealthy few and small farms (minifundios), which are often so small that they cannot support a single family.

In Brazil, 90% of land is owned by 15% of landowners. In Asia because of the high population density, the major problem is that too many small farms are operated by sharecroppers and tenant farmers, the land being owned by absentee landlords. As families multiply and debts rise, land is continually sold and subdivided leading to a very inefficient structure.

This involves land rights and security of tenure for tenants. The scope for land reform remains enormous in Latin America where 1% of the landowners own 70% 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.

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 as Research and Education, than to a shortage of reproducible capital as such. Also the need for the so-called Green Revolution. Biotechnology has the potential to raise productivity substantially and to reduce famine and malnutrition.

The industrial sector adds to the demand for goods produced by agric and absorbs surplus labour 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 through the release of resources if productivity rises faster than the demand for commodities.