UNIT 11: Agriculture and Rural Development

Objectives:•Define economic development and growth.•List indicators of economic development•Explain the role of agriculture to economic growth•Explain the role of trade in economic development•List the different trade policies in developing countries•List the form of government interventions•List regional trade organizations

Indicators of Economic Development

What is development and how can we measure it

Growth versus Development

• Economic growth may be one aspect of economic development but is not the same

• Economic growth:– A measure of the value of output of goods and services within a

time period( measured using GDP)

• Economic Development:– A measure of the welfare of humans in a society( measured using

a range of social indicators)

Sustainable Development: • Development that meets the need of the present without

compromising the ability of future generations to meet their own needs (measured using environmental quality indicators)

What do you think

• A country should be judged on how it provides for its most vulnerable inhabitants!

• That’s just my opinion.

Economic Growth• Using measures of economic

growth can give distorted pictures of the level of income in a country – the income distribution is not taken into account.

• A small proportion of the population can own a large amount of the wealth in a country. The level of human welfare for the majority could therefore be very limited.

But this could be just around the corner!Copyright: chinagrove, http://www.sxc.hu

This might be a common picture……Copyright: unseenob, http://www.sxc.hu

Growth

Economic Growth

• High economic growth fuelled through capital spending can hide a number of underlying economic problems – how is the income and wealth distributed? Who is doing the spending and will it ‘trickle down’ to the poor?

Shopping Mall in Saudi ArabiaCopyright : Christo Pacheco, http://www.sxc.hu

Dubai SkylineCopyright: zchizzerz, http://www.sxc.hu

National Income – Problems with using GDP/GNP

• Quality of life?– Can changes in economic growth measure changes in the quality

of life?– Does additional earnings power bring with it additional stress,

increases in working hours, increased health and family problems?

• Impact of exchange rate?– Difference in exchange rates can distort the comparisons – need

to express in one currency, but which one and at what value?

National Income – Problems with using GDP/GNP

• Informal economy?• Some economic activity not

recorded – subsistence farming and barter activity, for example

• Some economic activity is carried out illegally – building work ‘cash in hand’, drug dealing, etc.

• Work of the non-paid may not be considered but may contribute to welfare – charity work, housework, etc.

It might not be pleasant, but what he finds among the refuse could be all he has.Title: Sierra Leone Liberia. Copyright: Photolibrary Group

Indicators of Economic Development

Development

Development

• Development incorporates the notion of a measure/measures of human welfare

• As such it is a normative concept – open to interpretation and subjectivity

• What should it include?

Development

• Levels of poverty– Absolute poverty– Relative poverty

• Inequality• Progress – what

constitutes progress?

Our definitions of progress may be highly subjective. What has progress brought to native tribes people across the globe?Title: Navajos refuse casino riches. Copyright: Stock.Xchng

What is Poverty?

• Poverty is a ‘relative’ term

Romanian gypsies – is this man living in poverty?Copyright: ghitulescu radu, http://www.sxc.hu

Or is this villager in rural China?Copyright: Mark Forman, http://www.sxc.hu

Absolute poverty versus relative poverty

• Those living in absolute poverty are unable to satisfy their basic needs for survival, water, clothing, food, shelter and basic medicine.

• World Bank figure of $ 1.25 per day • Those living in relative poverty is poverty

relative to the rest of the population of the country. For example below 50 % of average earnings

Extent of poverty: proportion of the poor in total population(Select LDCs)

0 10 20 30 40 50 60 70 80

Benin

Senegal

Tanzania

Cambodia

Lao PDR

Guinea

Yemen

Nepal

Uganda

Ethiopia

Djibouti

Burkina Faso

Mauritania

Bangladesh

Rwanda

Eritrea

Niger

Mali

Chad

Gambia

Malawi

Mozambique

Madagascar

Zambia

PercentSource: World Bank , World Development Indicators 2003

Extent of food insecurity: percentage of population undernourished, 1998-2000 (available data for 36 LDCs)

Above 70% 30 – 49% 10 -29% DR of Congo Sierra Leone Lesotho Somalia Tanzania Senegal Afghanistan Central Africa R Lao Burundi Ethiopia Burkina Faso Madagascar Togo 50 – 69 % Rwanda Gambia Liberia Sudan Eritrea Cambodia Uganda Mozambique Niger Mali Angola Bangladesh Nepal Haiti Malawi Benin Zambia Yemen Mauritania Chad Guinea Below 10%

Myanmar Source: FAO, SOFI 2002

Share of agriculture in GDP (frequency distribution of 42 LDCs)

below 15 4

Share of Agricultural GDP in Total GDP (%)

0

4

8

12

16

20

below 15 15-24 25-39 40 andabove

percent

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of

co

un

trie

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Development

• Other considerations of human welfare:• Political freedoms?• Sustenance?• Sustainable development?• Self esteem?• Proportion of activity in different sectors of the

economy:– Primary– Secondary– Tertiary

Human Development Index

Other Measures?

Objectives of development

• Producing more life sustaining necessities such as food, shelter and health care and broadening their distribution.

• Raising standards of living and individual self esteem.

• Expanding economic and social choice and reducing fear.

Models of Economic development

• The production function• The saving function• The labour supply function (related to

population growth)

Agriculture’s contribution to Economic Development

1. It can provide the food and fibre necessary expanding population that is growing in income and wealth.

2. It can release workers needed for non agricultural goods and services production

3. It can serve as a market for non farm goods and services, thus providing a stimulus for expansion of employment and output in the non farming sector.

4. It can provide a source of capital that can be invested in improved productive facilities in the rest of the economy.

Industrial Economy’s contribution to Agricultural Development

• An urban industrial economy can contribute to rapid development of agriculture:– By expanding the markets for agricultural products.– By supplying farm machinery, chemical fertilizers, pesticides

and more, that raise the level of agricultural technology.– By expanding productive employment opportunities for

workers released from agriculture.– By technological change.– By making possible improvements in the quality of rural life

by raising standards of consumption both in urban and rural areas.

Development Components or Imperatives

• Successful economic development involves a complex of technological, economic and cultural changes.

• Rapid productivity changes in agriculture are becoming an increasingly essential component in this complex matter.

• For many developing countries, particularly those that are unable to limit the rate of population growth it may be necessary for a yield takeoff to precede an income takeoff.

• Important as yield increases are, most of the interrelated factors involved in agricultural development can be grouped into “essentials” and “accelerators”

The five essentials

• Essentials are factors or conditions that are required for increased agricultural production.

• The adequacy of these five essentials determines the possibilities of agricultural development.– New farm technology– Availability of purchasable inputs– Markets for products– Transportation– Incentives for agricultural producers

The five accelerators

• The accelerators are those factors that, although not absolutely essential for agricultural growth, can contribute to speeding up the rate of growth once essential are met.– Education– Production credit– Effective farm organisations or assosciations– Improving or expanding the land base– Effective agricultural planning

Development Constraint

• Environmental stress• Social stress• Income and cost impacts• Distribution of benefits

Government Intervention in Agriculture

• Government provide many important functions such as:– Provision of law and order.– National defence.– Infrastructure i.e. construction & maintenance of highways,

sanitation programs, medical programs, education programs, communication facilities etc.

– Economic & social regulations (Providing the legal foundation & social environment conducive to an efficient market system, maintaining competition in the market place, redistributing income & wealth to accomplish specific social objectives, monitoring the use of resources and stabilizing the economy.

Rationale for government intervention in the agricultural sector

• Support/ protect an infant industry.• Curb market powers of imperfect competitors

when necessary to promote social good.• Provide for food security.• Provide for consumer health and safety.• Provide for environmental quality.

Form of Government Intervention

• Government intervention in agriculture required to improve farm economic conditions have taken many forms. – Adjusting production to market demand

• Reduce amount of resources employed to produce.• This is achieved by the governments renting whole farms

or paying farmers not to produce the product by requiring them to set aside part of the land they use to plant this crop in order to qualify for farm program benefits.

• With less land planted to this crop, supply will decline and market prices will rise.

Form of Government Intervention….

– Price and income support payments• For government to improve farm economic conditions is to

directly support farm prices and incomes achieved by establishing a price floor supported through government purchases of surplus commodities.

• If the level of production rises during the year the government can step in and buy (and store) excess supply at the announced floor price.

• This would prevent farm revenue from falling below minimum desired levels.

• An alternative approach is to support farm incomes through direct transfer payments from the government to farmers

Form of Government Intervention….

– Foreign trade enhancements• Government can institute tariffs or tax on imports, which make imported

agricultural products more expensive to domestic consumer or it can institute quotas, which limit the quantity of a particular good that can be imported.

• Both actions protect producers in the domestic agricultural sector. These actions have the effect of limiting the supply coming into the market & raising the farm revenues of domestic producers.

• Government can enhance the attractiveness of Namibia (Team Namibia)- produced agricultural products in foreign markets by subsidizing their purchase, thereby stimulating the export demand for Namibian agricultural products.

• Export credits help potential buyers to finance the purchase of Namibian agricultural products.

• Subsidies are grants given by the government to private businesses to assist an enterprise deemed advantageous to the public.

• Commodity assistance programs promote exports under direct food aid or subsidized concessionary sales.

Form of Government Intervention….• Food security

– Food safety covers a variety of issues, including the conditions under which raw farm products are produced and the conditions under which these products are processed and distributed to consumers.

– Government has, in specific instances, stepped in and required health warning on products labels.

– Perhaps the most widely known is the waning on cigarette packaging that advises that smoking is hazardous to your health.

Consumer issues• Namibia has probably the safest and most abundant supply of

food and fibre products of any nation in the world.• This is not by chance, but rather by design.• The government is actively involved at various points along the

production, processing and delivery stages of the marketing channel to ensure a safe and nutritional food supply. There are numerous perspectives one can take regarding the discussion of consumer issues with respect to food and related products. Those perspectives discussed in this unit include:

– Food safety,– An adequate and cheap food supply,– Nutrition and health, food subsidies and – Consumer interests in animal rights.

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