2What is Agricultural Economics? “…an applied social science that deals with how producers, consumers and societies use scarce resources in the production, processing, marketing and consumption of food and fiber products”.
3What is Agricultural Development? Here development means what happens over timechange, evolution, growthit may be an improvement… or not.We focus on what happens to the whole countryto the entire agricultural sector,given overall economic development:higher income, production and consumptionimproved health and life expectancyand many other changes…
4A key change over time is that people get richer, so when we talk of “more” or “less” developed, what we usually mean is “richer” or “poorer”.We will usually be descriptive, asking:what happens over time,as countries get richer?what differs across countriesbetween rich & poor?And sometimes we will be prescriptive, askingwhat should be done,to help people get what they want?
5Development involves accumulation, that economists call “capital”: physical capital (houses, roads, machines)human capital (education, health)institutional capital (“rules of the game”)The accumulation of capital makes it more abundant and cheaper.But accumulation doesn’t happen automatically.To build up capital, people must save and invest from one year to the next.
6new physical things (seeds, chemicals, etc.) Development also involves innovation, which economists call “technical change”:new physical things (seeds, chemicals, etc.)new ideas (crop rotations, etc.)new institutions (futures markets, etc.)Innovation makes it possible to produce more of what people want, from the resources they have.But innovation doesn’t happen automatically.To innovate, people must be able to change what they do.
7Agriculture as a share of GDP vs. GNP per capita, 1989 Source: GW Norton and J Alwang, Introduction to Economics of Agricultural Development. New York: McGraw Hill, 1993.
8Agriculture as a share of employment vs. GNP per capita, 1985 Source: GW Norton and J Alwang, Introduction to Economics of Agricultural Development. New York: McGraw Hill, 1993.
9Percent of income spent on food vs. GNP per capita, 1980s Source: GW Norton and J Alwang, Introduction to Economics of Agricultural Development. New York: McGraw Hill, 1993.
13YEARSSHARE OF AGRICULTURE (%)SHARE OF INDUSTRY (%)SHARE OF SERVICES (%)198024,220,555,4198122,621,555,9198222,721,9198321,622,456198420,323,156,6198519,423,657198618,82556,2198717,224,957,9198818,325,156,7198916,625,957,5199016,3199116,126,557,4199215,857,8199314,559199415,326,658,1199514,427,719961458,3199712,728,159,2199813,427,6199927,958,7200013,127,8200113,728,5200229,356,9200312,629,9
19The Functions of Agriculture Function 1: Provide food for humankind Malthus’ theory of the capacity of world to feed humankind: Geometric increase in human population vs. arithmetic increase in food poduction.
20Function 2: Provide raw material for the industry Function 3: Provide opportunity for rural lanscapeFunction 4: Source for capital accumulation for developmentFunction 5: Source of labor for the industry
21Why Does Agriculture’s Share Declines in Economic Development? Inelastic income elasticity of demand for staple foods: as per capita income rises, declining proportion of household expenditure is devoted to food.By Engel's law, as per-capita income rises, the proportion of income spent on food declines relative to other products.
22As household demand for food declines in relation to other products, relative prices of foods decline, other things equal.This in turn reduces returns to factors used in agricultural production, causing a net migration of labor and capital to other sectors. Share of agriculturen declines over the economic development process..
23Almost always, agriculture declines In employment shareIn share of GDP or GNP (national income)In share of consumer expenditureDo farmers get poorer?Are there fewer farmers?
24Agricultural PolicyPolicy is guiding principle leading to a course of action that is pursued by the government.Policies and programsMajor forces for policy change:InstabilityGlobalizationTechnologyFood safetyEnvironmenyIndustrialization of agriculturePoliticsUnforseen events
25What is Agricultural Policy? A subset of public policy directed primarily but not exclusively at the farm and agribusiness sectors of society.
26Agricultural policy applies to two markets: 1. AGRICULTURAL INPUT MARKETSUSE OF LAND AND OTHER NATURAL RESOURCESAGRICULTURAL CREDIT AND FINANCELABORINDUSTRIAL PRODUCTS2. AGRICULTURAL OUTPUT MARKETSPRODUCTIONCONSUMPTIONMARKETINGINTERNATIONAL TRADE
27Next week Read: Economic Importance of Agriculture for Poverty ReductionAnswer the following questions:What is the role of agriculture in poverty reduction?What is the major research question in the paper?What is the conclusion of the paper?