Enhancing the Labour Absorption Capacity of Pacific Agriculture

1
Enhancing the Labour Absorption Capacity of
Pacific Agriculture

• Professor Ron Duncan
• Pacific Institute of Advanced Studies in
  Development and Governance
• University of the South Pacific
• Suva, Fiji Islands

2
Main Points

• The immediate focus of public investment to
  promote employment and economic growth in the
  Pacific should be on enhancing productivity
  growth in agriculture. This is the best way to
  provide employment and higher incomes for the
  majority of the people.
• This key lesson from the early development stage
  of the fast growing countries of East Asia and
  elsewhere was largely ignored.
• The small Pacific countries cannot compete in the
  export of large-volume, standard quality,
  agricultural commodities and should focus on
  differentiated products that sell for a premium
  price that covers their high trade costs
• Considerable public infrastructure investment and
  a wide range of research is needed to support the
  growth of agricultural productivity in the
  Pacific island countries

3
Table 1 Population projections, 2014 and 2029
Source Booth et al (2006).
4
Table 2 Potential supply of labour for overseas
employment, in 2004 and 2015
The working-age population is defined as those
of 15-54 years of age. Source World Bank (2006).
5
Growing from the bottom up!

• The fast-growing countries of East and South-east
  Asia, such as China, Indonesia, Malaysia,
  Thailand, and Vietnam, as well as Brazil (at
  times) and Chile in Latin America provide
  examples of the benefits of such a development
  strategy
• These East Asian economies had the fastest growth
  in agricultural productivity in the world, the
  fastest growth in agricultural value added, the
  fastest decline in the share of agricultural
  value added in GDP, and were among the most
  rapidly growing countries
• Where agricultural productivity growth has been
  poor, as in sub-Saharan Africa (SSA), the
  transformation of economies has stalled and
  economic growth is poor. Agricultures share of
  GDP in SSA has remained constant for the past 20
  years.

6
Why improved agricultural productivity delivers
employment and economic growth

• Increases in agricultural output through
  increasing land and labour productivity reduce
  the price of food for rural and urban consumers,
  which increases real incomes (particularly
  important for the poor who spend 50-80 per cent
  of their incomes on foodeven in the subsistence
  context)
• The increased agricultural productivity increases
  the incomes of farmers (despite the fall in
  output prices) and increases rural employment
• The increased incomes of farmers increase their
  savings, which can be used to fund investment on
  the farm as well as investment in non-farm rural
  and urban activities

7
Why improved agricultural productivity delivers
employment and economic growth

• The higher incomes of farmers make them more
  important markets for manufactures and services,
  including equipment repair, fertilizers,
  pesticide and seeds, and agricultural processing
  and marketing services
• The increased off-farm investment increases the
  opportunities for off-farm employment and leads
  to growing shares of off-farm income in the
  incomes of rural households
• In the early stage of development, both land and
  labour productivity must be increased, but land
  productivity should increase faster to create
  additional employment on farms
• Later, as employment opportunities outside
  agriculture increase, labour will move out of
  agriculture and wages for farm labour will
  increase in line with labour productivity
• Over time, the structure of agriculture must
  change if agriculture is to retain its
  comparative advantage. So we observe, for
  example, movement into higher valued agricultural
  commodities as economies develop

8
Challenges to increased agricultural productivity

• Small domestic markets, remoteness from major
  markets, and prevalence of natural
  disasterstogether with the difficulties posed by
  their insecure land tenure and related poor
  access to commercial creditmean Pacific
  countries face difficulties in generating
  agricultural productivity growth
• With small domestic markets, Pacific countries
  must export. But they have to find market niches
  that will pay prices high enough to offset their
  high domestic and international trade costs
• The village sector also faces difficulties in
  becoming part of the supply chain for domestic
  and international markets, including making
  enforceable contracts
• The growth of tourism offers scope for increased
  agricultural production. But supplying resort
  hotels means that local producers will have to
  meet international health and quality standards,
  as well as international standards in the
  reliability of supply

9
What research is needed?

• Research is needed to develop new and improved
  varieties and new crops if local industries are
  to be competitive with imports and to establish
  differentiated products (market niches)
  internationally
• New and improved and environmentally sustainable
  farming systems will be needed to support the new
  and improved varieties
• There must be development of systems to ensure
  that health and quality and SPS standards are
  met. These standards will have to be incorporated
  within supply chains.
• Economics research should be carried out on the
  development of appropriate infrastructure, the
  management of price and production risks, and the
  development of appropriate government policy