agriculture and development Flashcards
Why is it important to study role of agriculture in development
▪ large shares of GDP in developing countries
▪ employs larger share of the population
▪ low productivity sector
o A sector that produces Food and Cash crops e.g., coffee, cocoa, sugar
o agriculture dominates employment, production and income in rural areas - lots of poverty
common characteristic of the agricultural sector in low-income countries
o centrality of the family farm
o However, there are broad regional differences in the characteristics of agriculture
▪ Latin America: Large landholdings
▪ Asia: Land is heavily fragmented
▪ Africa: Persistence of communal land tenure and subsistence agriculture
o Why might agriculture develop differently in different countries?
▪ Labour productivity (e.g., technology adoption)
▪ Land productivity (geography, climate)
▪ Land ownership
agricultural productivity in poor countries
o Agricultural productivity is low in poor countries
o The richest countries produce at least twice as much grain per hectare as the poorest, even with lower labour input (per hectare of land) in rich countries
Agricultural Productivity Gap
o The Agricultural Productivity Gap (APG) is based on the Value Added (𝑉𝐴) per worker. 𝑉𝐴a measures value added in agriculture, and 𝑉𝐴n measures value added in non-agriculture
o Value Added measures the contribution of a particular sector to a country’s GDP
o We define the Agricultural Productivity Gap to be:𝐴𝑃𝐺 = (𝑉𝐴a/𝐿n)/(𝑉𝐴a/𝐿a)
o If the agricultural sector were as productive as other sectors in the economy, the APG should be close to 1
Some plausible explanations for agriculture being so unproductive
Technology
Institutions (especially with respect to land)
Infrastructure/Remoteness
How does technology explain unproductiveness of agriculture in developing countries
o Agriculture in poor countries has low productivity relative to potential
o The technologies used often seem not to be the most productive available
Possible reasons
o Technologies are profitable but constraints to adoption prevent uptake
▪ Credit
▪ Risk/Insurance
▪ Lack of information
▪ Lack of skills/training
▪ Behavioral factors
why is there a low adoption of technology in agriculture in developing countries
Farmers are often far more rational than many would guess…
o In the face of price, weather, and other uncertainty, along with limited access to credit and insurance (and even savings vehicles), risk aversion makes sense!
o Subsistence farmers often prefer technologies that combine low mean-per-hectare with low variance - to alternative high yielding but higher risk technologies
o They are not more irrational than rich farmers; they are just facing different constraints
How do institutions explain unproductiveness of agriculture in developing countries
▪ Limited or non-existent private ownership of land
o Poorly defined property rights can lead to many problems:
▪ Lack of incentives for investment in land
▪ Failure of land sale and rental markets
o It could be argued that maximising productivity and investment requires farmers to own the land they farm
Institutions: Sharecropping
o land owner permits a farmer to cultivate their land in return for a share (%) of the crop produced
o Sharecropping is considered to be intrinsically inefficient due to lower incentives for the farmer to invest in the land (compared to land that is owned)
Institutions: Sharecropping and Low Productivity - Graph Included
o For the farmer, the cost of dedicating an hour of time to farming is an ‘opportunity cost’ of alternative income (e.g., wages) forgone 𝑤𝐴
o If the farmer only receives a share γ of the value of their labour – under sharecropping – they will dedicate an inefficient amount of labour to the farm 𝐿
o Inefficient but also less risky for landowner and farmer
How does infrastructure/remoteness explain unproductiveness of agriculture in developing countries
o For example, substantial fractions of African populations live in low density areas, typically remote from markets
o Remoteness from markets is systematically (negatively) correlated with agricultural productivity (and with living standards)
o Poor infrastructure implies high transportation costs and high transaction costs that affect both inputs and outputs
Government’s key roles in facilitating agricultural development
▪ Strengthening policy on land reform and tenure
▪ Providing needed infrastructure
▪ Intervening in missing markets – e.g. for weather insurance or credit
▪ Reducing environmental externalities - e.g., deforestation, water pollution
Agricultural Extension Programmes
o Agricultural extension involves demonstration and training services for increasing farm productivity
o Extensions are often directly provided by the government or NGOs
o These services are credited with positive effects on productivity
