Roles of agriculture in economic development

Lectures for the Master course in Non-Farm Activities and Rural

Development in Developing Countries at the University of Rome

“La Sapienza”

by Prof. Elisabetta Basile

Agriculture plays a major role in economic development

• It can enhance economic growth, but it can also constraint it

• It is legitimate to observe that each country in its process of growth has to solve its ‘agrarian question’ in order to reach a sustainable and balanced growth

• The type and quality of growth depends on the ways in which the agrarian question is solved

Three major theoretical approaches explain the role of agriculture in

economic growth

• The theories that stress the passive role of agriculture as supplier of resources to the economy (Lewis, Fei-Ranis, Jorgenson; 1950-60)

• The theories that stress the active role of agriculture as a sector that is able to promote economic growth due to specific actions and behaviour (Mellor; 1970-90)

• The theories that stress the active role of agriculture as a sector that is able to promote sustainable economic growth (FAO, 2000)

The first approach is based on a dualistic view of the economy

inherited by the Classicals

• Agriculture is a backward sector, while industry is modern and advanced

• Technical backwardness is due to institutional and social constraints and gives origin to productivity and income differentials among sectors

• Technical backwardness is at the origin of the subaltern role of agriculture in economic growth

Agriculture produces a surplus that needs to be transferred to

the economy

•Food and primary goods

•Labour-force

•Capital and foreign exchange

The approach is based on the following hypotheses

• Agriculture produces as surplus in relation to its internal needs

• In agriculture there exists non-productive labour-force (non necessary to the sector) that is free to move among sectors

• Peasants are in condition to save, then they can supply savings to the economy

• Agriculture produces goods that are internationally tradable

This approach has provided a theoretical rationalisation for the

extraction of agricultural surpluses

• The major empirical support to this approach is provided by England

• Yet– The historical specificity of the English experience

is neglected– The long-run risks of the destruction of agriculture

are neglected (see the case of the USSR) – The social costs of the extraction of surpluses are

neglected

The extraction of agricultural surplus has created many

problems

• It has reduced the incentives to farmers

• It has increased the pace of the decline of agriculture with serious consequences on environment and society

• It has increased rural poverty and food insecurity

Also a ‘weak’ version of the approach exists

• Agriculture is a surplus supplier• Yet ‘traditional’ agriculture might not be able

to produce surpluses and then might not be able to transfer them to the economy

• It follows that surpluses need to be produced first in order to be transferred

• Only a ‘modern’ agriculture can produce surpluses

The ‘modernisation’ of agriculture implies a transfer of resources

from the economy to agriculture• The aims are

– To increase resource productivity– To introduce technical change– To orient production to market

• ‘Modern’ agriculture is in condition to produce surpluses in order to enhance economic growth

The second approach builds on the dualistic view of the

economy but

• Assumes the ‘modernisation’ of agriculture as the necessary starting step that creates the condition for the surplus to exist

• Sees public intervention as necessary to ‘modernise’ agriculture

The approach of the active role is based on the following

hypotheses

• Among sectors linkages exist that are important for their implication in economic terms

• Intersectoral linkages are activated by the market• Also agriculture has linkages with the other sectors• In the capitalist economy agriculture has important

linkages with other sectors via input and output markets

J. Mellor (1976) introduces his theory of growth linkages taking as an example the

case of the Green Revolution in India

• The public intervention to ‘modernise’ agriculture increases farmers’ incomes

• Farmers increase their consumption, both of production means and consumption goods

• The increased demand leads to the emergence of local firms producing the newly demanded goods

• The final result is that, due to the initial intervention in agriculture, the rural economy develops in a balanced manner

The growth of rural industry is a major factor for a balanced growth

• It increases non-farm employment providing work opportunities for the labour-force that leaves the primary sector or is underemployed in it

• It reduces the pressure on towns and metropolises, keeping under control the level of pollution

• It exploits ‘traditional skills’ that are typical to each area

• It exploit the competitive advantages of rural areas in terms of costs (labour-force and infrastructures)

The rural economy is a differentiated economy

• Sectors co-exist in the same territory

• Sectors share the same resources that are employed according to the needs of each sector

• Sectors are market integrated (via input and output market)

The necessary condition for the growth linkages model to work is public intervention on agriculture

• Agricultural ‘modernisation’ plays a central role• But the very concept of agricultural

‘modernisation’ raises many problems:– Mellor’s model emphasises the importance of

modernisation in terms of technical change, but technical change is only one aspect of a ‘modern’ agricultural sector

– Non-technological modernisation is also important– To react to market signals is important in economic

activity, but self-sufficiency is also a major aim

Agricultural modernisation has raised many problems

• On environment– Industrial pollution– Misuse of natural resources

• On society– Pressure on families and communities– Migration from rural to urban areas

• On the economy– Food insecurity– Food dependency

The joint consequences of surplus extraction and agricultural

modernisation are

• Rural and urban poverty

• Increased inequality between the town and the country

• Urban migration

• Pressure on urban infrastructures

• The widening of the informal sector

The third approach is based on the following hypotheses

• Agriculture is, jointly, a social, economic, and spatial system

• As such, it plays many roles• Because of its multifunctionality, agriculture

contributes to collective welfare in many different ways, not only as surplus supplier or buyer of goods

• In the past many of these contributions were not taken into account as they could not been valued in market terms

FAO (2000) stresses two major categories of non ‘conventional’

roles of agriculture• Economic roles that agriculture plays as

a by-product of its primary role and that the market underestimates

• Non-economic roles that agriculture plays as a consequence of its primary role and that the market neglects

Because of its non-conventional roles agriculture can contribute to

sustainable economic growth • Economic roles underestimated by the market

– Income generation– Poverty reduction– Food security

• Non-economic roles neglected by the market– Management and conservation of natural resources– Social cohesion and stability– Preservation of culture