Agricultural Transformation and Rural Development

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Agricultural Transformation and Rural Development

• Chapter 9

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• Some key issues
• The Green Revolution of the 2nd half of the
  20th Century
• Use of improved crop varieties and complementary
  inputs (fertilizer, pesticides, irrigation,
  power)
• Why have some regions, some farmers participated,
  others have not?
• How can traditional ag (low productivity,
  economically marginal) be transformed into
  high-productivity agriculture?
• Are prices and policies in LDC ag appropriate to
  increase productivity and income?
• Is raising ag productivity sufficient to improve
  rural incomes and welfare, or are other changes
  needed?
• Are productivity increases based on modern ag
  technology sustainable over a long period of
  time?
• Other adverse consequences of technology?

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Macro perspective the role of ag in economic
development

• The emphasis in the early to mid-20th Century on
  rapid industrialization was misplaced
• Agricultural development is now seen as an
  important part of any development strategy
• Recall discussion of factors affecting
  rural-urban migration, need for balanced approach
  to development
• See WDR 2008

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Balanced growth can generate higher incomes, more
equal distribution of income, and help reduce
rapid urbanization
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Food production growth by region
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Real Wheat Prices, 1860-1995 despite rapid
population growth, real food prices have declined
due to increased growth in productivity. A key
question can this growth be sustained until
population growth is stabilized?
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The Structure of Agricultural Systems

• Two kinds of world agriculture
• Large scale, specialized commercial
• Improved high-yield crop varieties, improved
  animal genetics, purchased nutrients, mechanical
  power, chemical pest management
• Small scale, mixed semi-subsistence
• Traditional and improved crop varieties, human
  and animal labor, limited use of purchased inputs

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Despite the success of the GR, productivity lags
in some regions
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Another critical issue distribution of
productive assets (land)
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Lorenz Curves of Agricultural Land Distribution
by Operational Holdings
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The Economics of Agricultural Development
Transition From Traditional to Modern Ag

• T.W. Schultz Transforming Traditional
  Agriculture
• Problem farmers in traditional agriculture are
  poor but efficient
• Low incomes due to lack of more productive
  technology, not inefficient use of traditional
  technology
• Solution increased investment in technologies
  and human capital to raise productivity incomes

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• Schultz model solution requires investments in
  agriculture (high-payoff input model)
• investment in agricultural research to produce
  technologies
• supply of modern inputs (improved seeds,
  fertilizers, pesticides, mechanical implements)
• market financial infrastructure
• policies that provide farmers incentives to be
  productive and make investments
• investments in farmers human capital so they can
  use the technology efficiently

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• Schultz argues ag research is a public good so
  private firms will under-invest, must have
  publicly-funded ag research (e.g., land-grant
  university system in US)

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Institutions for Intl Ag Research

• Normal Bourlag, Ford Rockefeller Fndns
• Green Revolution Institutions the Consultative
  Group for Intl Ag Research (CGIAR)
• http//www.cgiar.org/centers/index.html
• National Multilateral Institutions
• UN, World Bank, USAID, etc
• UN Conventions on Biodiversity, Climate Change,
  Desertification

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• Schultz model
• Investment in agricultural technology and human
  capital raises labor productivity, incomes in the
  rural sector, encourages labor to stay in ag.
• Lewis model
• Investment in non-ag required to draw surplus
  labor out of ag encourages rural-urban migration
  
• (Lewis and Schultz shared Nobel Prize in
  Economics in 1979)

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• Some argue farmers are resistant to change
• Contradicted by the fact that GR technologies
  were rapidly adopted where they were profitable
• Rational farmers adopt technology that is most
  beneficial given the constraints they perceive
• A problem in policy analysis is that outside
  observers often dont see the constraints that
  farmers actually face
• Other factors affecting subsistence farmers
• Lack of property rights
• Risk Financial constraints (more on this later)
• High costs of information, transportation

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Key Policies and Institutions for Agricultural
Development

• Technological change support for RD
• Human capital investment
• Health nutrition
• Schooling
• Market infrastructure institutions
• Roads, communications
• Property rights, financial institutions
• positive policy environment
• Price policies, product input trade policies
• Example fertilizer prices in Kenya distorted by
  import duties, high transport costs

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Key Policies and Institutions for Agricultural
Development(see WDR 2002, Ch 2)

• Property rights, financial institutions and the
  incentive to invest
• Various systems of land use ownership
• Mexico land reform and ejidos, policy to
  formalize property rights
• Senegal use rights conveyed by village councils
• Peru informal rights, high cost to establish
  formal title
• 3 functions of formal property rights
• Land markets and gains from trade
• Linkage to financial institutions land is key
  form of collateral
• Is reposession a realistic option without formal
  land market?
• Security from appropriation

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Case Studies

• Machakos, Kenya
• Mixed crop/livestock system
• Maize plus mix of subsistence crops
• Semi-arid, terraced
• Cajamarca, Peru
• High Andes, semi-arid, some terraces
• Potato/tuber crops, grains legumes, some dairy
• Senegal Peanut Basin
• Single growing season in low, semi-arid sandy
  soils
• Peanut, millet, maize, some livestock

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Machakos, Kenya

• Nutrient management in Machakos, Kenya
• Maize-based, mixed crop-livestock system
• Mineral fertilizer use low (20 have use gt0)
• Extensive terracing in mid-20th Century reduced
  extensive soil erosion
• data show high rates of nutrient depletion (50
  kg N/ha/yr)

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Machakos, Kenya Data
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Terracing was introduced in this region in the
mid-20th Century (More People, Less Erosion
Tiffen el al.). Research shows high nutrient
losses are occurring despite the reductions in
erosion with terracing.
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Typical terraced field in Machakos
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Inter-cropping is practiced extensively 12
crops in this plot.
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• Zero-grazing units provide opportunity to
  improve nutrient management efficiency and
  livestock productivity.

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The Machakos systems are characterized by a high
rate of crop failure where irrigation is not
available (36-68 without irrigation, 12 with
irrigation).

• Probability of maize crop non-failure is
  statistically significant function of
• organic and mineral fertilizer use
• pesticide use
• irrigation
• inherent productivity of the area