Agricultural
Transformation and
Rural Development
9.1 The Imperative of Agricultural Progress and Rural
Development
Over 3.1 billion people lived in rural areas in
developing countries in 2010, a quarter of them live in
extreme poverty
People living in the countryside comprise considerably
more than half the population of different nations of the
world.
Vast majority of the world’s poorest (over 2/3rd)people
are located in rural areas and engaged primarily in
subsistence agriculture.
Agricultural development is now seen as an important
part of any development strategy.
Three complementary elements of an agriculture– and
employment-based strategy
Accelerated output growth through technological,
institutional and price incentive changes designed to
raise the productivity of small farmers
Rising domestic demand for agricultural output
derived from an employment-oriented urban
development strategy
Diversified, non-agricultural labor intensive rural
development activities that are supported by the
farming community
There is a stress on Integrated Rural Development.
Integrated rural development
- The broad spectrum of rural development
activities, including small-farmer agricultural
progress, the provision of physical and social
infrastructure, the development of rural nonfarm
industries, and the capacity of the rural sector to
sustain and accelerate the pace of these
improvements over time.
Six main questions, therefore, need to be asked about agricultural and rural
development as it relates to overall national development:
1. How can total agricultural output and productivity per capita be substantially
increased in a manner that will directly benefit the average small farmer and
the landless rural dweller while providing a sufficient food surplus to promote
food security and support a growing urban, industrial sector?
2. What is the process by which traditional low-productivity peasant farms are
transformed into high-productivity commercial enterprises?
3. When traditional family farmers and peasant cultivators resist change, is their
behavior stubborn and irrational, or are they acting rationally within the context
of their particular economic environment?
4. What are the effects of the high risks faced by farmers in low-income
countries, how do farm families cope with these risks, and what policies
are appropriate to lessen risk?
5. Are economic and price incentives sufficient to elicit output increases
among peasant agriculturalists, or are institutional and structural changes
in rural farming systems also required?
6. Is raising agricultural productivity sufficient to improve rural life, or must
there be concomitant off-farm employment creation along with
improvements in educational, medical, and other social services? In other
words, what do we mean by rural development, and how can it be
achieved?
9.2 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
As Figure 9.1 shows, low-income countries tend to have the highest share of
the labor force in agriculture, sometimes as much as 80% to 90%. The
share of agriculture in GDP is lower but can represent as much as half of
the value of output.
Green revolution
- the boost in grain production associated with the
scientific discovery of new hybrid seed varieties of
wheat, rice, and corn that have resulted in high
farm yields in many developing countries.
Market Failures and the Need for Government Policy
A major reason for the relatively poor performance
of agriculture in low income regions has been the
neglect of this sector in the development priorities
of their governments, which the initiatives just
described are intended to overcome.
9.3 The Structure of Agrarian Systems in the
Developing World
One helpful way to categorize world agriculture,
proposed by the agricultural development economist
Alain de Janvry and his colleagues in the World Bank’s
2008 World Development Report is to see that
alongside advanced agricultural systems in developed
countries
Two kinds of world agriculture
Highly Efficient agriculture of developed countries
where substantial productive capacity and high
output per worker permit a small number of farmers
to feed entire nations.
Inefficient and low productivity agriculture of
developing countries where in many instances the
agricultural sector can barely sustain the farm
population, let alone burgeoning urban population.
◦ There are wide productivity gaps.
Land Productivity in Developed and Developing Countries
Peasant Agriculture in Latin America, Asia, and Africa
Agrarian system
- The pattern of land distribution, ownership, and
management and also the social and institutional
structure of the agrarian economy.
Agrarian Patterns in Latin America
Coexistence of latifundios and minifundios
Latifundios- very large landholdings that employ from 12
to even thousands of workers
Minifundios- small farms that can only provide for a
single worker
Minifundios comprise up to 90% of the farms, but only
occupy up to 17% of total agricultural land
Latifundios are inefficient- they do not exploit the
economies of scale of large production; rather they
underutilize the land
Large landholdings- symbol of power rather than a
productive asset
Monitoring costs are higher for large landholdings
Family farm
- a farm plot owned and operated by a single household
Medium-size farm
- a farm employing up to 12 workers
Transaction costs
- cost of doing business related to gathering
information, monitoring, establishing reliable suppliers,
formulating contracts, obtaining credit, etc
Overall the agricultural sector seems to be doing well in
many Latin American countries.
Extreme rural inequalities still persist
Fragmentation and Subdivision of Peasant Land in Asia:
◦ Absentee landlordism and persistence of sharecroppers
and tenant farmers.
◦ Asia suffers from land scarcity: a large number of
peasants crowded on too little land
◦ Traditional agrarian structure is the village: the
community owns land, and peasant families can use it to
provide goods and services to the whole tribe
◦ European colonization changed system by encouraging
private property ownership.
◦ This created
landlords: who own the land, but usually live in the city;
sharecroppers and tenant farmers: who actually work the
land
Fragmentation and Subdivision of Peasant Land in Asia
◦ Sharecropping occurs in about 85% of the land in
Asia
◦ Transition from subsistence to commercial
production gave rise to the money-lender
provides cash to the farmer to cover for seeds,
fertilizers and food while the crop is harvested.
Land plays role of collateral.
◦ Money-lender phenomenon has led to many peasants
losing their land, being forced to become tenants
paying high rents, and being trapped in poverty
◦ Rapid population growth has resulted in more
fragmentation and peasant impoverishment.
Subsistence Agriculture and Extensive Cultivation in Africa
◦ Vast majority of people farming small plots
◦ Low productivity due to lack of technology
◦ Shifting cultivation used widely
◦ Seasonal demand for labor depending on rainy season
◦ High dependence on unimproved seeds sown on
unfertilized, rain-fed fields
◦ Relatively high fraction of underutilized land
◦ Land ownership generally not an instrument of economic
power
◦ High concern about climate change impact
◦ Need for an African new green revolution; there are
hopeful signs that it is getting underway – AGRA.
Shifting cultivation
- is the most economic method of
using limited supplies of labor on
extensive tracts of land. Under shifting
cultivation, once the minerals are drawn
out of the soil as a result of numerous
cropping, new land is cleared, and the
process of planting and weeding is
repeated.
9.4 The Important Role of Women
Women provide 60% to 80% of agricultural
labor in Africa and Asia, and 40% in Latin
America
Women work longer hours than men
Government assistance programs tend to
reach men, not women
Because the active participation of women is
critical to agricultural prosperity, policy
design should ensure that women benefit
equally from development efforts.
The Economics of Agricultural Development
Three stages of agricultural development
◦ Subsistence: low-productivity, subsistence level,
peasant farm
◦ Diversified: mixed family agriculture, part for
consumption, part for sales
◦ Specialized: high-productivity modern farm with
specialized agriculture geared to commercial
markets
9.5 Microeconomics of Farmer Behavior and Agricultural
Development
Subsistence Farming: Risk Aversion, Uncertainty, and
Survival
On the classic peasant subsistence farm, most output is
produced for family consumption and a few staple
foods (usually including cassava, wheat, barley,
sorghum, rice, potatoes, or corn) are the chief sources
of nutrition.
◦ Traditional neoclassical model of profit maximization
with certainty is not adequate
◦ Price, weather, and other uncertainty, along with
limited access to credit and insurance, largely
explains the extent of risk-averse behaviors observed
◦ Risk-averse subsistence farmers often (not
irrationally) can prefer technologies that combine low
mean-per-hectare with low variance to alternative
high yielding but higher risk technologies
◦ Efforts to minimize risk and remove commercial and
institutional obstacles to small farmer innovation are
necessary.
Crop Yield Probability Densities of Two Different Farming
Techniques
Issues in sharecropping: a long debate
◦ Intrinsically Inefficient due to poor incentives
(Marshall)
◦ Monitoring approach- landlords would establish
contracts with tenants to use maximum effort
(Cheung)
◦ Screening argument (if high ability then take pure
rental; if low ability then sharecropping)
◦ Compromise between two types of risk (Stiglitz,
others)
Risk to landlord that tenant will not do much work
and risk to tenant that fixed rent will in some years
leave him no income
◦ Empirical evidence for inefficiency of sharecropping from
Ali Shaban (comparing same farmer, controlling for soil)
Farmer used fewer inputs and produced less on
sharecropped land than own land
Giving sharecroppers a larger share of the produce and security
of tenure on land can increase efficiency.
Issues in interlocking factor markets
◦ Sharecropping as result of social inequality and
market-failure
◦ Landlord as employer, loan officer, ultimate customer
to peasant tenant as well
◦ Provides landlord abundant sources of monopoly and
monophony power.
The Transition to Mixed or Diversified Farming
Diversified or mixed farming therefore represents a
logical intermediate step in the transition from
subsistence to specialized production. In this stage, the
staple crop no longer dominates farm output, and new
cash crops such as fruits, vegetables, coffee, tea, and
pyrethrum are established, together with simple animal
husbandry. These new activities can take up slack in
farm workloads during times of the year when
disguised unemployment is prevalent
From Divergence to Specialization: Modern Commercial
Farming
◦ This type of farming usually emerges when other sectors
of the economy, such as the industrial sector, have already
developed. It usually involves capital intensive and labor-
saving techniques of production.
In specialized farming, the provision of food for the family
with some marketable surplus is no longer the basic goal.
Instead, pure commercial profit becomes the criterion of
success, and maximum per-hectare yields derived from
synthetic (irrigation, fertilizer, pesticides, hybrid seeds, etc.)
and natural resources become the object of farm activity.
Production, in short, is entirely for the market
9.6 Core Requirements of a Strategy of Agricultural and Rural
Development
Improving Small-Scale Agriculture
Technology and Innovation
- In most developing countries, new agricultural
technologies and innovations in farm practices are preconditions for
sustained improvements in levels of output and productivity
Two major sources of technological innovation:
first is the introduction of mechanized agriculture to replace human
labor.
Second, Biological (hybrid seeds and biotechnology), water control
(irrigation), and chemical (fertilizer, pesticides, insecticides, etc.)
innovations
Scale-neutral
- unaffected by size; applied to technological
progress that can lead to the achievement of
higher output levels irrespective of the size
(scale) of a firm or farm.
Institutional and Pricing Policies: Providing the
Necessary Economic Incentives
Another critical area of many past and some
continued failures in government policies relates to the
pricing of agricultural commodities, especially food
grains and other staples produced for local markets.
Many governments in developing nations, in their
headlong pursuit of rapid industrial and urban
development, maintained low agricultural prices in an
attempt to provide cheap food for the urban modern
sector. Farmers were paid prices below either world
competitive or free-market internal prices
Adapting to New Opportunities and New
Constraints
The best opportunities for sales to growing urban
areas are generally found in higher value-added
activities, particularly horticulture (fruits, vegetables,
and cut flowers) and aquaculture.
One of the biggest constraints looking ahead is the
looming environmental problems driven by global
warming and climate change, which are expected to
most negatively affect sub-Saharan Africa and South
Asia.
Conditions for Rural Development
We can draw three conclusions regarding the
necessary conditions for the realization of a people-
oriented agricultural and rural development strategy
Land Reform
Conclusion 1: Farm structures and land tenure patterns
must be adapted to the dual objectives of increasing
food production and promoting a wider distribution of
the benefits of agrarian progress, allowing further
progress against poverty.
Supportive Policies
Conclusion 2: The full benefits of small-scale
agricultural development cannot be realized unless
government support systems are created that provide
the necessary incentives, economic opportunities, and
access to needed credit and inputs to enable small
cultivators to expand their output and raise their
productivity.
Integrated Development Objectives
Conclusion 3: Rural development, though dependent primarily
on small-farmer agricultural progress, implies much more. It
encompasses (a) efforts to raise both farm and nonfarm rural
real incomes through job creation, rural industrialization, and
other nonfarm opportunities and the increased provision of
education, health and nutrition, housing, and a variety of
related social and welfare services; (b) a decreasing inequality
in the distribution of rural incomes and a lessening of urban-
rural imbalances in incomes and economic opportunities; (c)
successful attention to the need for environmental sustainability
—limiting the extension of farmland into remaining forests and
other fragile areas, promoting conservation, and preventing the
harmful misuse of agrochemicals and other inputs; and (d) the
capacity of the rural sector to sustain and accelerate the pace of
these improvements over time.
