Sectoral Strategies for Inclusive

Growth: The role of Agriculture

Readings
1) Mellor(1995) Introduction to Agriculture
on the Road to Industrialization
2) Byerlee, Diao and Jackson(2005)
Agriculture, Rural Development, and Pro-
poor Growth
http://ruta.org:8180/xmlui/bitstream/handle/1
23456789/492/RN33.pdf?sequence=1
(The readings constitute background
material for the lecture and not direct
references)
Poverty and Agriculture
A large proportion of worlds poor are concentrated in the
rural areas (70% according to IFAD, 2011)
500 million rural poor are in South Asia, the largest
concentration of poverty in the world
Moreover, urban poverty alleviation is impossible without
reducing rural poverty
Agriculture continues to be the major source of livelihood
in rural areas
However, agricultural growth has been very low in the
last two decades for the poorer regions of the world
Should the revival of agriculture be the ideal policy
option to induce an equitable growth path?

Agricultural Growth and Poverty
Reduction: The Possible Linkages
Growth brings about higher entitlement for the producers
with land
Labour-intensive agriculture also generates employment
for the landless but to what extent?
Higher production of food grains make them more
affordable for the net buyers
What about net sellers?
Can agricultural growth eliminate poverty?
The limit to labour absorption in traditional agriculture
The related question of surplus labour
The question of linkages with the non-farm sector


Agriculture and growth of non-farm
sectors
High agricultural growth frees up labour and capital for
industrialisation(structural transformation)
High agricultural growth and the demand for capital
goods (fertilizers, pesticides and basic machinery and
machine parts)
High growth in agriculture => higher income for farmers
=> higher demand for consumption goods and services
=> impetus for rural non-farm activities (consumption
linkage)
High growth in food grain production => cheap wage
goods for industrialisation in the rural as well as the
urban sector => higher non-farm employment

Problems of Agricultural Growth
Local constraints ranging from inadequate
irrigation, soil fertility to low human capital
Unequal access to land and the
implications for growth linkages
General trend of falling prices for
agricultural commodities: possibility of a
rapture in the consumption linkage
The new policy regime and the withdrawal
of the state from agricultural development

Implications of State Withdrawal
Sharp decline in public investment in
agriculture in terms of infrastructure,
provision of credit and other non-land
inputs
Absence of an institutional framework that
reduces the problems of transaction costs
and information asymmetries in agriculture
Role of the state in Green Revolution

Digression: The Possibilities of the
Second Green Revolution
Biotechnology and its ties to the
multinationals
The risk associated with the new
technology and the absence of a safety-
net
The case of farmers suicide in India
The role of large scale land grabbing in
Africa
Some Figures
World Bank loans to agricultural projects fell
from 30 percent (of total loans) in 1980 to 12
percent in 2007
The labour productivity in most Asian countries
is below $1000/per worker as against
$40,000/per worker in the USA
Although proportion of output from agriculture
has gone down, proportion of employment
continues to be high: Lewisian transition from
agriculture to the non-agricultural sectors has
slowed down considerably
Structural
Transformation/Change
Long term changes in composition of
output and employment with movement
from agriculture to industry and services in
conjunction with economic growth
Continuous increase in agricultural
productivity required to maintain the same
level of production with the declining
labour force

The Lewis Model as a model of
structural transformation
Model of dual economy with low
productivity agricultural sector and high
productivity industrial sector
Surplus labour in the rural/agricultural
sector
With a wage differential, transfer of labour
from agriculture to industry at constant
wage rate in the industrial sector
This process continues until the surplus
labour disappears( Lewisian turning point)


Employment & GDP by Sector in India(% of total)

Year

Sector
1978 1993 2004
GDP Employment GDP Employment GDP Employment
Agriculture,
Forestry & Fishing
44 71 33 64 22 57
Industry &
Construction
24 13 28 15 28 18
Services
32 16 39 21 50 25
Total
100 100 100 100 100 100
Employment & GDP by Sector in China (% of total)
Year

Sector
1978 1997 2007
GDP Employment GDP Employment GDP Employment
Agriculture,
Forestry & Fishing
28.2 70.5 18.3 49.9 11.3 40.8
Industry &
Construction
47.9 17.3 47.5 23.7 48.6 26.8
Services
23.9 12.2 34.2 26.4 40.1 32.4
Total
100 100 100 100 100 100
Implications
Structural transformation is still not
complete
Difference in labour productivity between
industry and agriculture is not coming
down
Excess labour is trapped in agriculture
In order to ensure a decent standard of
living to this huge labour force agriculture
needs to be the main target of any pro-
poor strategy
Elements of an pro-poor strategy
Ensure equitable access to land
Provide complimentary inputs including credit,
seeds, fertilisers as well as ag. extension
services
Increase public investment on rural
infrastructure and appropriate technology in
agriculture-the possible role of public works
programme
Prepare to prioritize agriculture for budget
allocation and development planning

Rural Non-Farm Employment: Is it an
Alternative?
The recent increase in the proportion of
rural non-farm employment
The possibility of the non-farm sector as a
back up to the crisis ridden agrarian sector
The complication of being a residual
sector
Need to re-assess the quality of
employment in this sector