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Lecture 14Don DeVoretz

Agriculture:

A Strategy for Development

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Roles for Ag in Development

• Raises income per capita with productivity

• Increases income equality

• Reduces rural urban migration

• Reduces population growth rate

• Reduces food imports, perhaps raises exports

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Role of Demand

• Factors that lead to shortage;– 1. Population Growth of 2.0 % per annum– 2. Growth in income per capita of 2.5 % and – 3. Elasticity of demand for foodstuffs of unity

• Leads to annual increase in demand of 4-5% per annum

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Role of Supply

• 1. Tenurial arrangements: – How is productivity affected by ownership of land?– What is APP of land, labour and capital by tenure ?

• 2. Economies of scale:– Is large more productive than small?– Is there an optimal size for operation ?

• 3. Agricultural production functions:– What is role of labor, land and technology?

•  4. Technical change– What is labour bias in technical change ?

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Average Productivity and Tenure

• What is optimal size ?• Equalize MPP per unit

cost – if cost of land

and capital same,

then X is optimal size

Hectacres

APP input

APP Land

APP Cap

X

X

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Scale Economies in Ag

0

10

20

30

40

50

60

70

80

90

1stQtr

2ndQtr

3rdQtr

4thQtr

EastWestNorth

• Start at C, small scale• Move to B,

• Note K-Land ratio constant

• Note large increase C-B

• Move B to A• Note K-Land ratio

constant• Note B-A less

• Conclusion, increase inputs by t does output increase by more or less t?

Land

Capital

A

B

C

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Green Revolution; Three Generations

• 1. First generation: seed revolution• Mexico, wheat productivity 1950s• Philippines, rice IR8 and mariculture 1960s• India and Pakistan, wheat, cotton 1970 to 1980s• Africa, upland rice failed

• 2. Second generation:• fertilizer pesticide • tube well• credit• marketing problem

• 3. Third generation: Regional equity, income distribution and displaced workers

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Green Revolution; Third Generation

• Third generation: all problems– regional equity, north-south issue

• productivity differences

• no land taxes in northern India

– income distribution • wage labour and rise in land value

– displacement of workers to urban areas

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Historical Growth Patterns

• Annual change in per capita food output, 1950-2001

• Region LA F.E. N. E. Africa LDC

• 1948-60 .4 .8 .7 .0 .6

• 1960-70 .6 .3 .0 -.7 .1

• 1970-80 .9 .7 .7 -1.2 .5

• 1980-94 .8 1.7 1.3 .0 .9

• 1995-01 1.0 1.8 1.1 -.05 .96

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What does the above tell us ?

• 1. In general, improvement for LDCs 1970-01 • 2. Large differences, Africa versus Far East

– Implications:  - Poverty in rural sectors has increased in Africa and most of Near East.

- Note 68 % of African population is on land and only produce 20% of GDP

• 3. Why do these differences arise ?– a. population growth– b. technological change– c. land tenure

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Productivity Gap: 2001

• Country Kilos grain per hec Pop– Japan 6,119 125m

– USA 5,136 263m

– Bangladesh 2,602 120m

– Mexico 2,506 92m

– India 1,943 929m

– Nigeria 1,172 111m

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What Causes Productivity Gap?Risk Aversion

• Why is technique A, which is less productive than technique B, chosen?– technique B is feed, fertilizer revolution– need credit, irrigation and no pests– no insurance schemes– failure is starvation

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Risk-Productivity Trade-off

• Both mean of 8• Range of A

– 6 to 10

• Range of B– 4 to 16

• Mean variance of– A is 8/8 = 1

– B is 8/10 = .8

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Tenure and Productivity

Country Mini %output Mini % of land Latifundio % output Latifundio of land

Argentina 43.2% 3.4% .8% 36.9% Brazil 22,5 .5 4.7 59.5 Chile 36.9 .2 6.9 81.3 Peru 88.0 7.4 1.1 82.4 

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Policy Issues

• Would land redistribution – raise output ?– lower output ?– increase equality ?– lead to more democracy or violence ?

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End of Show