1. A New Challenge for Agriculture in Low and Middle Income ECA Countries 1

2.  Analytical Framework  Trends in Farm Mechanization  Rationale – understanding these trends  Conclusions – where to from here 2

3.  Trends in mechanization conditioned by ◦ Approach to reform  European Accession Countries plus Turkey  Transition Countries  Truncated Reform Countries ◦ Resource endowments at beginning of reform  Labor Intensive production  Labor Extensive production 3

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5.  Tractor Use  Horse Use  Combine Use 5

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9.  Wage Rates (and supply of rural labor)  Interest Rates 9

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13.  Tractor Imports 13

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15.  Conceptual Framework  Observed Trends in Capital/Labor Ratios (K/L) 15

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18.  I. Incentives to Invest ◦ Investment rates < $10/ha until land reform and market liberalization are well advanced.  II. Subsequent Growth in Investment – Responds to Stronger  Financial institutions  Business Environment  Competition Policy 18

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20.  Wage rates – strongest influence, across all categories  Nominal Interest rates – relevant for accession countries  Access to Credit – important for combines  Road Density – importance of farm machinery as a source of transport  Interest Costs vs Machinery Costs ?? 20

21.  Farm mechanization heavily influenced by approach to policy reform   Labor costs may be more important than interest costs.   De-mechanisation a major issue where there is a decline in both labor availability and machinery use. 21

22.  Labor Extensive Truncated Reform Countries ◦ Policy measures to promote investment in farm machinery based on reducing financial constraints (state credit and leasing programs, subsidized interest). Are these the real constraints ?   Labor Intensive Transition Countries ◦ Potential for increased use of low cost farm machinery, particularly farm machinery produced by emerging countries. 22