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Farm Mechanization

Farm Mechanization. A New Challenge for Agriculture in Low and Middle Income ECA Countries. Farm Mechanization. Analytical Framework Trends in Farm Mechanization Rationale – understanding these trends Conclusions – where to from here. Analytical Framework.

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Farm Mechanization

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

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

  3. Analytical Framework • 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

  4. Trends in Farm Mechanization • Tractor Use • Horse Use • Combine Use

  5. Tractor Use in the ECA 1990-2005

  6. Horse Use in the ECA 1990-2005

  7. Combine Use in the ECA 1990-2005

  8. Trends in Factor Prices • Wage Rates (and supply of rural labor) • Interest Rates

  9. Farm Wage Rates ECA 1996-2005

  10. Mechanization and Rural Labor

  11. Nominal Interest Rates ECA 1996-2005

  12. Trends in Investment • Tractor Imports

  13. Tractor Imports – ECA 1996-2005

  14. EXPLAINING THESE TRENDS • Conceptual Framework • Observed Trends in Capital/Labor Ratios (K/L)

  15. Capital/Labor Ratios - ECA 1997-2005

  16. Reform Thresholds for Investment in Farm Machinery • 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

  17. Policy Reform Thresholds II – Rates of Investment

  18. Determinants of Investment in Farm Machinery • 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 ??

  19. Conclusions • 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.

  20. Conclusions (continued) • 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.

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