Agricultural Transformation and Rural Development

1. Agricultural Transformation andRural Development “It is the agricultural sector that the battle for long-term economic development will be won or lost” – Gunnar Myrdal, Nobel Laureate in Economics.

2. Agricultural Transformation andRural Development Debates in Economic Development: Agriculture Vs Industry • Early debates • David Ricardo: he was the first one to elaborate on the Adam Smith’s political economy, especially on Land-rent, distribution and the theory of comparative advantage.

3. Agricultural Transformation andRural Development • Ricardo further argued that continued population growth and the corresponding increase in the demand for food would result in the cultivation of all land for agricultural production. • Hence, the utilization of poor and poorest land would cause the land value/rent to go up, mainly due to the farmer’s competition for the better and more profitable land. • According to David Ricardo, this process would result in a redistribution of national income to the benefit of landed aristocracy and to the detriment of industrialists.

4. Agricultural Transformation andRural Development Simon Kuznets (1901-1985) But the comprehensive relationship was suggested by another economist Kuznets in his model where agriculture and industry interact and function in interdependent way.

5. Agricultural Transformation andRural Development • Kuznets models of Agriculture and Industry relationship and this relationship, according Kuznets is positive sum, not zero sum as envisioned by David Ricardo who considered agriculture as main hindrance to the process industrialization. • Based on this model, we briefly describe variety of role that agriculture can play in the aggregate growth and development process. • Economic extraction from agriculture to industry through unequal exchange and economists call it transfer of value.

6. Agricultural Sector Industrial Sector Taxes Investment Taxes Investment The state Savings Loans Savings Loans Credit system Raw material, consumer goods Import of consumer goods Intermediate, capital goods, etc Exports from industry Exports from industry Asimplified model of the interrelations between agricultural and industrial sectors by Kuznets

7. Agricultural Transformation andRural Development • Breton Woods and beyond • This debate continued up to the formation of Breton Woods System in 1944, and modernization theory, put forwarded Walt W. Rostow, especially focused on the issues in the in the process of economic development, pertaining to the developing countries. • According to this diagnosis, underdevelopment of agriculture was considered to be the major barrier to the process of industrialization and was attributed to the existence of old and traditional structures of the society where people were less willing to change.

8. Agricultural Transformation andRural Development • Importance of Agriculture: • It is a major source of foreign exchange • Provides raw material for industry • Provide labor • Provides food stuff for the population • One of the main features of the policy from 1950 to 1960 was that the states in the Third World should do every thing in their power to extract the greatest possible economic surplus from agriculture and use it for industrial development. • But this notion was rejected by some economist.

9. Agricultural Transformation andRural Development According to the research of B.F Johnston and John Miller that agriculture should not only provide resources for industrialization but should also be developed with the aim of increasing the supplies of foodstuffs and raw material for industry (1977). They warned that if this did not happen then whole national development will come to halt.

10. Agricultural Transformation andRural Development • Peasant rationality: Shultz • Shultz was one of the scholars who dispelled the traditional conceptions about the peasants that they are lazy, lethargic and irrational and do not exploit the opportunities available to them for increasing their production and incomes. • According to this conception, the subsistence farmers, in particular, are regarded as irrational, because they continued to produce only for their own households. • The reason for this attitude is attributed to risk avoidance and risk minimizing behavior for the sake of profit maximization that involves considerable risk-taking. • Shultz argued that peasants are poor but efficient, they can bring about productivity increases and improvements provided they are given access to modern technology. • To him peasant are rational actors would react to changes and apply new technologies, if they have the opportunity to do.

11. Agricultural Transformation andRural Development • Urban bias: Lipton • According to him, the most important class-conflict or interest in the Third World is not between labour and capital, nor is it between national and foreign interests. It is between the rural and urban classes – between city and countryside (Lipton 1977). • According to him, in this conflict, it is generally the urban classes which dominate because political power is concentrated in the cities. • While supporting his argument, he says average rural incomes are typically around one-third of urban incomes.

12. Agricultural Transformation andRural Development • At the same time public and private services are much more extensive in the cities and towns than in the rural areas. • In addition state and market mechanism generally function in favour of the cities by extracting surplus from agriculture from industry. • Concentration only on urban development and neglect of agriculture ....would serious distortion in the process of development • He therefore suggests that the only sensible and rational strategy is to concentrate far more resources in agriculture. • Main reason of Lipton’s dissatisfaction with industrial is that it has only absorbed the fraction of labour force.

13. Agricultural Transformation andRural Development • Lack and availability of the capital is an other reason and he, like Schultz, thinks that peasants are more effective in producing output per additional unit of capital input. • Given the enormous productive potential of agriculture, he stresses that poor countries with large agricultural sectors and large rural population should allocate more resources to agriculture. • By saying that he does not belittle the importance of industrial sector but he wants the removal of those biases which stand in the way of transfer of resources from rural to urban. • He further recommends that manufacturing and other urban sectors should not be subsidized with massive resource transfer of from rural to urban areas and this practice should be stopped forthwith.

14. Agricultural Transformation andRural Development • He also recommends agriculture-driven growth process. • His theory of urban biases has been subjected to criticism on the ground that in so many countries where agriculture and industry have developed hand in hand and no evidence of such transfers have been found. • According to some studies East Asian and some economies in Latin America are exceptions but in some of the African countries urban biases have been found and maintained.

15. Agricultural Transformation andRural Development • how to bring agricultural transformation. • Impact of rural-urban migration on the agriculture development. • Cause - economic stagnation in the rural areas through out the LDC • 3 billion lived in rural areas in 1997, figure and now it has been soared to around 3.3 billion. • Around 70% of world poor live in rural areas and engaged in primarily subsistence economy. • Basic concern is survival

16. Agricultural Transformation andRural Development • According to World Bank figure 1 billion in the developing countries does not have food. • Economic stagnation is the core reason of growing poverty, inequality and rapid population growth. • Basic function of the agriculture is to provide low-priced food and manpower to the expanding industrial economy, which is considered as ‘leading sector’ in the overall economic development. • Lewis model is great contribution, which emphasis on industrial growth with an agriculture sector fueling this industrial expansion by means of its cheap food and surplus labor.

17. Agricultural Transformation andRural Development • Agriculture as a tool of employment-based strategy requires three elements. • Accelerated output growth through technological, industrial and price incentive changes to raise the productivity of small farmers. • Raising domestic demand for agriculture output. • Diversified and non-agriculture labor-intensive rural development activities that directly or indirectly support and are supported by the farming community. • Integrated agricultural and rural development strategies.

18. Agricultural Transformation andRural Development • Agriculture structures • Latin American agriculture is characterized by the dualistic latifundio-minifundio system, in which a small fraction of landowners own the great majority of cultivated land in the region. • Total factor productivity is twice as high on family farms as on latifundios. Latifundios under-utilize labor, while minifundios over-utilize labor, relative to land. • The latifundio system persists partly because land ownership provides positive externalities, such as social status and political power.

19. Agricultural Transformation andRural Development • Asian agriculture is characterized by too many people crowded onto too little land. • Farms tend to be inefficiently small, and production is often characterized by sharecropping and tenant farming. • There is a good discussion of the impacts of colonial rule, money lending, and recent population growth.

20. Agricultural Transformation andRural Development • African agriculture is characterized by low productivity subsistence farming, primitive techniques, shifting cultivation, and labor scarcity during the peak agricultural season. • Though traditionally land has been less scarce in Africa, population growth has caused land to become more scarce, and production has been shifting towards small owner-occupied plots, as opposed to communal shifting cultivation.

21. Agricultural Transformation andRural Development • Identifying characteristics of subsistence farming. • For example, risk aversion may lead poor peasants to resist new techniques that offer higher average yields because the variance of the yield may be larger. The relationship between risk aversion and sharecropping is discussed. Interlocking factor markets and monopoly and monopsony power are mentioned. • Identifying characteristics of the transition to mixed farming. Identifying characteristics of modern commercial farming. Technology plays a major role at this stage.

22. Agricultural Transformation andRural Development • Reforms • role of technology, pricing policy and other economic incentives, land reform possibilities, and a permanent reduction in urban-rural opportunity imbalances.

23. Agricultural Transformation andRural Development • Pakistan is an agricultural country. A variety of crops is cultivated here. The major crops are wheat, rice, cotton and sugar cane. • Agriculture contributes 24% to our gross Domestic Production. • About 70% of the population is engaged in agriculture directly and indirectly. • Agriculture employs a major portion of labour force. About 48% of the labour force is engaged in agriculture and only 12% in the manufacturing sector of the economy.Agriculture is the major source of foreign exchange earnings. About 64% of exports are based on agriculture raw material.

24. Agricultural Transformation andRural Development • Agriculture is a source of food for the increasing population of our country. About 16 million tons wheat, 4 million tons rice is produced in country. • Agriculture is a source of revenues for the federal and provincial government. • Local bodies also get revenue from the agriculture sector.Agriculture provides raw material for a number of industrial units.

25. Agricultural Transformation andRural Development • These units employ thousands of workers. Local supply of raw material keeps these units in operation.

26. Agricultural Transformation andRural Development