1 Lecture 17 Don DeVoretz Agriculture: A Strategy for Development

2 Roles for Ag in Development Raise income per capita with productivity Increases income equality Reduces rural urban migration Reduces population growth rate Reduces food imports, perhaps raises exports

3 Role of Demand Factors that lead to shortage; –1. Population Growth of 2.0 % per annum –2.Growth in income per capita of 2.5 % and –3. Elasticity of demand for foodstuffs of unity Leads to annual increase in demand of 4-5% per annum

4 Role of Supply 1. Tenurial arrangements: –How is productivity affected by ownership of land? –What is APP of land, labour and capital by tenure ? 2. Economies of Scale: – Is large more productive than smaller? –Is there an optimal size for operation ? 3. Agricultural production functions: – what is role of labor, land and technology? 4. Technical Change –What is labour bias in technical change ?

5 Average Productivity and Tenure What is optimal size ? Equalize MPP per unit cost –If cost of land and capital same then X is optimal size Hectacres APP input APP Land APP Cap X X

6 Scale Economies in Ag Start at C, small scale Move to B, Note K-Land ratio constant Note large increase C-B Move B to A Note K-Land ratio constant Note B-A less Conclusion, increase inputs by t does output increase by more or less t? Land Capital A B C

7 Green Revolution; 3 Generations 1. First Generation: Seed Revolution Mexico, Wheat productivity 1950s Philippines, Rice IR8 and mariculture 1960s India and Pakistan, Wheat, cotton 1970 to 1980s Africa, upland rice failed 2. Second generation: Fertilizer pesticide tube well credit and marketing problem 3. Third generation: Regional equity, income distribution and displace worker.

8 Green Revolution; 3 rd Generation Third generation: all problems –Regional equity, north-south issue Productivity differences no land taxes in northern India –income distribution Wage labour and rise in land value –and displacement of worker to urban areas

9 Historical Growth Patterns Annual Change in Per Capita Food output Region LAF.E. N. E. AfricaLDC

10 What Does above tell us ? 1.In general, improvement for LDC’s Large differences, Africa versus Far East –Implications: Poverty in rural sectors has increased in Africa and most of Near East. N Note 68 % of African population is on land and only produce 20% of GDP 3. Why do these differences arise ? –a. Population growth – b. technological change –c. land tenure

11 Productivity Gap CountryKilos grain per hecPop –Japan6,119125m –USA5, –Bangladesh2, –Mexico2,50692m –India1,943929m –Nigeria1,172111m

12 What Causes Productivity Gap? Risk Aversion Why is technique A which is less productive than technique B Choosen ? –Technique B Is Feed, Fertilizer Revolution –Need Credit, irrigation and no pests –There are no insurance schemes –Failure is starvation

13 Risk-Productivity Trade-off Both Mean of 8 Range of A –6 to 10 Range of B –4 to 16 Mean Variance of –A is 8/8 = 1 –B is 8/10 =.8

14 Tenure and Productivity CountryMini %output Mini % of landLatifundio % outputLatifundio %of land Argentina43.2%3.4%.8%36.9% Brazil22, Chile Peru

15 Policy Issues Would land redistribution –Raise output ? –Lower output ? –Increase equality ? –Lead to more democracy or violence ?

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