Rural incomes in the context of

structural and agricultural

transformation

Japan, July 2016

David Dawe

Regional Strategy and Policy Advisor/Senior Economist

Food and Agriculture Organization

Regional Office for Asia and the Pacific

How to make rural people prosperous?

• Migration to urban areas

• Diversify to rural nonfarm income

• Higher labor productivity in farming

Who are the rural poor?

• In India, 87% of the rural poor are landless or marginal farmers (operating less than one hectare)

• For the rural poor, there are a wide variety of main income sources:

Source:

World Bank

(2016)

Percentage of rural households who earn income from agriculture and non-agriculture

(based on data from Bangladesh, Nepal, Pakistan, Indonesia and Viet Nam)

Rural nonfarm income

Source: Davis et al (2017)

Bangladesh

6%

Bangladesh

10%

Indonesia

35%

Indonesia

16%

Nepal

27%

Nepal

19%

Pakistan

37%

Pakistan

22%

Viet Nam

44%

Viet Nam

25%

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Percentage of rural households specialized in farming

Rural nonfarm income

Source: Davis et al (2017)

Value-added per worker

Average annual growth in agricultural value added (VA) and agricultural VA per worker (1990 – 2016)

Source of raw data: World Bank (2017)

Higher labor productivity in farming

• Fewer inputs, especially labor (mechanization)

• More valuable outputs (diversification away from staple

foods)

• Innovations and comparative advantage (international trade,

institutional innovations to deal with declining farm size,

agricultural research)

Higher labor productivity in farming

• Fewer inputs, especially labor (mechanization)

• More valuable outputs (diversification away from staple

foods)

• Innovations and comparative advantage (international trade,

institutional innovations to deal with declining farm size,

agricultural research)

Rural wages

Average annual growth in agricultural real wages, early 2000s to early 2010s

Source: Wiggins and Keats (2015)

Labor use (including family labor) in rice cultivation, key rice production areas

Fewer inputs, especially labor

Source of raw data: Moya et al (2004) and Bordey et al (2014)

Number of holdings using farm mechanization in India

Mechanization

2.89

7.95

25.89

52.84

31.28

61.13

0

10

20

30

40

50

60

70

2006-07 2011-12

Million

Million

Million

Million

Power tillers Diesel and Electric Pumpset Tractors*

Source: Gulati, Saini, Manchanda (2017)

Higher labor productivity in farming

• Fewer inputs, especially labor (mechanization)

• More valuable outputs (diversification away from staple

foods)

• Innovations and comparative advantage (international trade,

institutional innovations to deal with declining farm size,

agricultural research)

Crop area harvested in China, 1976-2014

More valuable outputs

Source of raw data: FAO (2017)

Crop area harvested in Malaysia, 1961-2014

More valuable outputs

Source of raw data: FAO (2017)

Higher labor productivity in farming

• Fewer inputs, especially labor (mechanization)

• More valuable outputs (diversification away from staple

foods)

• Innovations and comparative advantage (international trade,

institutional innovations to deal with declining farm size,

agricultural research)

Efficiency: International trade

Net trade per capita, 1961-2014, Viet Nam

Source of raw data: FAO (2017)

International trade

Net trade per capita, 1961-2014, Indonesia

Source of raw data: FAO (2017)

Trends in farm size (SE Asia)

National average farm size over time

Trends in farm size (South Asia)

National average farm size over time

Trends in farm size (East Asia)

National average farm size over time

What is the optimal farm size?

• Emerging evidence that larger farms (but not large by

international standards) in Asia are either more productive

than smaller farms, or have closed the gap with small farms

(Foster and Rosenzweig 2017; Liu et al, 2014; Otsuka et al,

2016).

Land is scarce in Asia

Agricultural area per capita

Source of raw data: FAO (2017)

What is the optimal farm size?

• Emerging evidence that larger farms (but not large by

international standards) in Asia are either more productive

than smaller farms, or have closed the gap with small farms

(Foster and Rosenzweig 2017; Liu et al, 2014; Otsuka et al,

2016).

• Key issues for policymakers

– Implications for national food security: is increased productivity of

large farms due to lower input costs, higher yields or both?

What is the optimal farm size?

Costs of rice production by farm size, Republic of Korea, 2015

Source: Government statistics

What is the optimal farm size?

• Emerging evidence that larger farms (but not large by international standards) in Asia are either more productive/profitable than smaller farms, or have closed the gap with small farms (Foster and Rosenzweig 2017; Liu et al, 2014; Otsuka et al, 2016).

• Key issues for policymakers

– Implications for national food security: are changing advantages of large farms due to lower input costs, higher yields or both?

– Are (relative) advantages in profitability due to changes in crops or products or due to greater efficiency of machines?

– How steep is the U?

• Does maximizing productivity generate a socially optimal outcome given the lack of social protection?

Will farm sizes increase in the region?

Institutional innovations to facilitate land consolidation

• Market-based

– Land transfer service centers in China (nearly one-third of rural HH

rent out their land)

• Government-driven with subsidies

Will farm sizes increase in the region?

• If no, what types of institutional innovations can ensure that

the productivity losses of small farms are not too large?

– Increasing importance of knowledge-intensive technologies (KIT)

– Incentives of small farmers to adopt such KIT probably small

– Rentals of machinery, other services in order to save time (in light of

increased nonfarm income!) and money (in light of higher rural wages)

for small landowners

Regional Office for Asia and the Pacific

Bangkok, Thailand

Thank you for

your kind

attention