Chapter 9

Agricultural
Transformation
and Rural
Development
 9.1 The Imperative of Agricultural
Progress and Rural Development

• The heavy emphasis in the past on rapid

industrialization may have been misplaced
• Agricultural development is now seen as an
important part of any development strategy
• Three complementary elements of an
agriculture – and employment-based strategy
– Accelerated output growth
– Rising domestic demand for agricultural output
– Non-agricultural labor intensive rural
development activities that are supported by the
farming community

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 9.2 Agricultural Growth: Past
Progress and Current Challenges

• Although agriculture employs the majority

of the developing country labor force, it
accounts for a much lower share of total
output
• Agricultural production is rising but
unevenly

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 Table 9.1 Average Annual Growth
Rates of Agriculture, by Region (%)

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 Figure 9.1 As Countries Develop, the Shares of
GDP and Labor in Agriculture Tend to Decline,
but with Many Idiosyncrasies

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 Figure 9.2 Cereal Yields by World Region,
1960-2005

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 9.2 Agricultural Growth: Past Progress and
Current Challenges (cont’d)

• Malnutrition and famine inspire calls for a new

green revolution focused on Africa.
• Food price spike of 2007-2008 partly due to
short term factors but long term factors may
herald return to persistently higher food prices
in the years ahead.
• New upward spike of prices by early 2011
• The presence of market failures - and poverty
alleviation goals – create need for constructive
government role in agriculture

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 Figure 9.3 World Prices for Agricultural
Commodities, 1974–2012

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 9.2.2 Market Failures and the
Need for Government Policy
Neglect of Agriculture:
• Agricultural underperformance is partly due to
government prioritization of urban industrial
sectors over rural agricultural development.
• Historical strategies like import substitution
and overvalued exchange rates favored
industry at the expense of agriculture.
Role of Government:
• While past interventions (like forcing farmers to
sell to state marketing boards) were often
harmful, government still has a vital role to
play.
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 9.2.2 Market Failures and the
Need for Government Policy
Common Market Failures in Agriculture:
• Environmental externalities (e.g., soil erosion),
• Public goods (e.g., agricultural R&D, extension services),
• Economies of scale in marketing,
• Information asymmetries in product quality,
• Missing markets for credit, insurance, and inputs,
• Monopoly/monopsony power in input and output markets,
• Wage-setting power of large landowners in rural labor
markets.
Poverty Traps and Inequality:
• Poverty itself can limit access to education, credit, insurance,
and market participation.
• Government is needed to address these traps through
support services, infrastructure, and inclusionary policies.

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 9.3 The Structure of Agrarian
Systems in the Developing World

• Three Systems of Agriculture

– The World Bank classifies developing countries into three groups
based on the role of agriculture:
1.Agriculture-based countries: Agriculture is a
major contributor to growth (e.g., much of Sub-
Saharan Africa).
2.Transforming countries: Most poor are still rural,
but agriculture contributes little to growth (e.g.,
South and East Asia).
3.Urbanized countries: Urban poverty dominates,
and agriculture’s share in GDP is minimal (e.g., Latin
America).

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 Figure 9.4 Agriculture’s Contribution to Growth
and the Rural Share in Poverty in Three Types of
Countries

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 Table 9.2 Labor and Land Productivity in
Developed and Developing Countries

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 9.3 The Structure of Agrarian Systems in
the Developing World (cont’d)

• Peasant Agriculture in Latin America, Asia,

and Africa
– Latin America and Asia: The Latifundio–
Minifundio dualistic pattern in Latin America
– The fragmented and heavily congested dwarf
land holdings in Asia
– Africa: extensive cultivation patterns

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 9.3 The Structure of Agrarian
Systems in the Developing World

Agrarian Patterns in Latin America

• Despite some modernization (e.g., Chile’s non-traditional
exports), rural poverty and land inequality remain deep-
rooted, especially in regions with unfavorable agricultural
conditions.
• The colonial legacy and ongoing political and social exclusion
continue to affect land access and service provision for rural poor​
Fragmentation in Asia
• Average farm sizes are tiny and shrinking (e.g., 0.6 ha in
Bangladesh).
• Colonial land policies, monetized economies, and population
pressure have led to fragmented landholding systems.
• Traditional village-based land allocation has been replaced by
individualized property rights, contributing to inequality and
reduced efficiency​
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 9.3 The Structure of Agrarian
Systems in the Developing World

Subsistence Agriculture in Africa

• African agriculture remains low in productivity,
relying heavily on family labor and traditional tools.
• Practices like shifting cultivation are no longer
sustainable due to population pressure.
• Labour shortages during peak seasons and reliance on
rain-fed farming further hinder productivity.
• There is a growing need for modern inputs and
technologies, especially in densely populated
regions like Kenya and Nigeria​

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 Table 9.3 Changes in Farm Size and Land
Distribution

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 9.4 The Important Role of Women

• Women provide 60% to 80% of agricultural

labor in Africa and Asia, and 40% in Latin
America
• Women work longer hours than men
• Government assistance programs tend to
reach men, not women

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 9.5 The Microeconomics of Farmer
Behavior and Agricultural Development

• Subsistence farming: risk aversion, uncertainty, and survival

– Traditional neoclassical model of profit maximization with
certainty is not adequate
– Price, weather, and other uncertainty, along with limited
access to credit and insurance (and even savings
vehicles), largely explains the extent of risk-averse
behaviors observed
– Risk-averse subsistence farmers often (not irrationally)
can prefer technologies that combine low mean-per-
hectare with low variance to alternative high yielding but
higher risk technologies
– Efforts to minimize risk and remove commercial and
institutional obstacles to small farmer innovation are
necessary

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 Figure 9.6 Small-Farmer Attitudes toward Risk:
Why It Is Sometimes Rational to Resist
Innovation and Change

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 Figure 9.7 Crop Yield Probability Densities of
Two Different Farming Techniques

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 9.5 The Microeconomics of Farmer
Behavior and Agricultural Development
(cont’d)

• Issues in sharecropping: a long debate

– Intrinsically Inefficient due to poor incentives (Marshall)
– Monitoring approach (Cheung)
– Compromise between two types of risk (Stiglitz, others)
– Screening argument (if high ability then take pure rental)
– Empirical evidence for inefficiency from Ali Shaban
(comparing same farmer, controlling for soil)
– Giving sharecroppers a larger share of the produce and
security of tenure on land can increase efficiency
• Issues in interlocking factor markets

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 Figure 9.8 Incentives under
Sharecropping

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 9.5 The Microeconomics of Farmer
Behavior and Agricultural Development
(cont’d)

• The Transition to Mixed and Diversified

Farming
• From Divergence to Specialization: Modern
Commercial Farming

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 9.6 Core Requirements of a Strategy of
Agricultural and Rural Development

• Improving Small-Scale Agriculture

– Technology and innovation
– Institutional and pricing policies: Providing
necessary economic incentives
– Adapting to new opportunities and new
constraints
• Conditions for Rural Development
– Land reform
– Supportive polices
– Integrated development objectives

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