Week 8 - Lecture B

Week 8 - Lecture B - ECON 4411A, Fall 2011 Development...

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ECON 4411A, Fall 2011 Development Economics Summary Notes: Week Eight, Lesson 2 Agricultural Transformation Quote of the day: It is only the ignorant who despise education. Publilius Syrus (100 BC) The Economics of Agricultural transformation There are three broad stages of the evolution of agricultural production. Pure, low productivity (subsistence level peasant farming), diversiFed mixed family agriculture and modern farms exclusively engaged in high-productivity special- ized agriculture geared to the commercial market. Agricultural modernization in mixed-market developing economies is a grad- ual but sustained transition from subsistence to diversiFed and specialized pro- duction. However, this transition involves much more than reorganizing the structure of the farm economy or applying new agricultural technologies but in addition a±ecting the entire social, political, and institutional structure of rural societies. Without all these changes, agricultural development will not take o± or might end up increasing the inequality between the few wealthy large land- holders and the many poor tenant farmers, smallholders, and landless laborers. We would examine how this transformation can occurs by considering the three main kinds of farming below: Subsistence Farming A peasant subsistence farm is characterized by most output produced for family consumption. Common staple foods include wheat, barley, sorghum, rice, or corn. Some of the output may be sold or traded in local markets but this is limited. This kind of farming is characterized by low output and productivity, simple traditional methods and tools and minimal capital investment. Land and labor are the principal factors of production. The law of diminishing returns is in operation as more labor is applied to shrinking (or shifting) pieces of land. In addition, output is usually a±ected by seasons and hence, labor is underemployed for most of the year. High levels of production is uncommon in this settings because of technolog- ical limitations, rigid social institutions, fragmented markets and communica- tion networks between rural areas and urban centers and a harsh environment to contend with. Usually cash income generated comes from nonfarm wage la- bor. Unfortunately, most of the developing world’s agriculture is still in this subsistence stage. Subsistence agriculture is a highly risky and uncertain ven- ture and the existence of price uncertainty in this environment explains partly why small scale farmers are often resistance to technological innovation. [recall 1
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graphical examples given in class on why farmers might refuse innovation or new technologies because of uncertainty.] It is important to note that many programs to raise agricultural productiv- ity among small farmers have suFered because of failure to provide adequate insurance (both ±nancial credit and physical “buFer” stocks) against the risks of crop shortfalls. An understanding of the role that risk and uncertainty play in
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Week 8 - Lecture B - ECON 4411A, Fall 2011 Development...

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