Friday 26 March 2010

Consider (i) the constituent elements, (ii) the underlying economic logic and (iii) the economic implications of land reform and the `new technology' introduced in agriculture in poor countries since the mid-1960s.

Consider (i) the constituent elements, (ii) the underlying economic logic and (iii) the economic implications of land reform and the `new technology' introduced in agriculture in poor countries since the mid-1960s.


In LDCs agriculture accounts for 40-90 percent of total output and between 40-80 percent of employment[1] (Ghatak, 1998). In partnership with industrialisation, development of agriculture is important for increasing living standards in developing countries. Its role includes; transfer of labour to the growing industrial sector, the supply of a highly demanded/necessary major wage good (food), a main source of raw materials to export for the gain of foreign exchange.
If farmers are assumed to want to maximise profits, then the increase in production by the use of new technology (which should lead to a lower unit cost of production) will bring about a lower total cost at a greater output and when this higher output is sold then “New technology raises the net income or profit of farmers” (Ghatak, 1998). Furthermore for a small farmer, if the demand for food is price elastic (i.e. sensitivity of demand to the price of food is high) then as his crop production goes up so will his total revenue. With the increase in supply (due to new technology) the price per crop will drop and the farmer will need to increase his production to keep his total revenue. If he does not adopt the new technologies then his costs will stay the same and “he will experience a fall in net income” (Ghatak, 1998). For larger farmers it is easier to increase the inputs and therefore increase or at least match profit. If price elasticity is inelastic then, as the price is lowered by an increase in supply from farmers using new technologies, if he does not increase his inputs and increase supply then his profits will fall. The larger farmers who can afford the increase in inputs are much less affected (Ghatak, 1998). This will occur until equilibrium between supply and demand is found. It is by this logic that, improved technology will bring desired (probably higher) agricultural productivity in developing countries and thus farmers, in order to maximise their profits, will adopt the new technologies, and those who do not will lose their farm to larger farms as they fail to cover costs with revenue. In this way output should be maximised. However, when studied further it does not appear to occur this way due to a number of factors.
This dominance of agriculture comes with a variety of different types of farmers. These include large land holders, landless peasants, subsistence peasants and sharecropping peasants. The landless labourers often were ex-landholding peasants who, as plots were divided up into smaller pieces eventually sold their land to larger local landlords and were forced to take up very low paid job on the farms or plantations. The subsistence peasants and sharecropping peasants are those who fall into ‘debt bondage’ instead of selling land, taking credit at ‘extortionate’ interest rates and being trapped into giving part of their crops per year[2] as interest (Sloman, 2006). Considering this was being documented 2006, almost 40 years after the start of the ‘Green Revolution’, with its pursuers’ promise of alleviating rural poverty[3], one must ask just what affect it has had for developing countries.
The Green Revolution (i.e. ‘New technology’) is defined as a significant increase in crop production per acre for equal inputs after the modern technology and technique has been adopted, see graph 1 (Ghatak, 1998). Land Reform (or also, agrarian reform) is the redistribution of land with the aim of increasing agricultural production (Munck, 1984). It has been suggested that the Green Revolution could act as a replacement for land reform, which is often politically difficult to implement, but it can be argued that they are only complimentary and one without the other will not have the effect of alleviating poverty and can only partially help the country’s development. There is higher productivity of labour in the rest of the economy compared to that of agriculture for developing countries, in 1980, 15 years on from the start of the Green Revolution. When Griffin says that “low productivity in agriculture will be associated with low rural incomes and a high incidence of poverty” (Griffin, 1991) he is saying that by 1980 and yet now, the Green Revolution has not delivered upon its promise to alleviate poverty.
In the application of Land Reform there are two central objectives: “greater agricultural production and more social justice” (Cohen, 1978). One reason why production has to be increased is the population growth – required greater production as land expansion could not be expected to meet increased food demands as time went on. In order to meet this increasing demand, the expansion of land used has been a large supply of the growth of agricultural output. However, such expansion cannot be guaranteed as potential land becomes sparser. Thus the land already available had to increase in productivity. One way of achieving this was connected to the size of farms and their productivity.
In general, it would be assumed that larger farms could take advantage of greater economies of scale, using productive farm resources more efficiently than smaller farms. However, it has been noted that there is an inverse link between the size of farms and productivity in developing countries. In other words, it appears that smaller farms tend to have higher production: such as the difference between latifundia and minifundia and smaller family farm levels of output[4] (Todaro, 1985). This may be through poorer farmers who own less land cropping more intensively, harvesting one extra crop per year than larger farmers with higher income. Reason for this is the survival incentive[5]. What this difference indicates is an inefficient allocation of resources, actual output lower than potential output and an unequal distribution of income (Griffin, 1991). Radical land reforms are required to address the effects of the inefficiency of larger farms on the economy (Ghatak, 1998).
Although smaller farms are said to be more efficient than the very larger ones, there is a floor to this rule, seen in Latin America, where in fact the product of the family farms is more than the minifundia, as well as elsewhere[6]. A second part to the land reform objective of increased productivity of agriculture is to increase investment into the land. In order to increase investment, some property rights must be changed. Quite often in developing countries, the (sometimes absentee) landlord, in order to “minimise risk”[7], fragments his land, and rents it out in very small plots, often for short time periods and (in the case of sharecropping) having pre-arranged contracts at high costs to the tenants. This fragmentation makes it harder to access and irrigate, which, as will be discussed, is extremely important when considering the green revolution (Ghatak, 1998). Removing absentee landlords and distributing the land to the tenants is a suggested remedy, the logic being that absentee landlords do not have an interest in investing to increase the productivity of their land[8]. If the tenant’s rental period were to be increased by law, then investment would be less of a risk. This is especially so because agricultural investment tends to have gains in the long-run. Even if the peasants did want to invest, if he does not own the land, he would require a loan from the informal sector, at massive interest. All these problems magnify the unlikelihood of a poor farmer adopting the ‘New Technology’ that’s required to increase the productivity of the land, and thus achieve desirable agricultural growth.
Despite these theoretical benefits, although Land Reform has benefitted some developing countries on their path to increasing agricultural output and in developing altogether, these cases must be carefully considered and are relatively few. The biggest successes were those of South Korean and Taiwanese land reform. However, this can be put down to specificities of the time[9] (Griffin, 1991). In comparison, in India, poor peasants and landless labourers gained very little from the land reform (Ben Crow, 1988). Sometimes where land reform was appearing to work, its effectiveness was affected greatly by political implications of the times (sometimes brought about by the reforms) as seen in the example of Chile[10] (Munck, 1984). Then again, there is evidence of land reform working to reduce the inequality, with Gini index reducing from between 6 percent (Columbia and India) and about 27 percent (Mexico and Taiwan) (Cohen, 1978). What may be suggested is that even if there is some form of land reform promised, it is only through complementary institution change, such as farmer co-operatives and state backed credit for smaller farmers that real change could be achieved[11], paving the way for cash-cropping farmers. Also required for this is structural investment, in the form of transport and power (electricity) to help sell the marketable surplus (Griffin, 1991). However, reform seems to tend to benefit mainly the rich peasants and landlords, being unequal due to the inability of states/governments to enforce rules as effectively as necessary (Hans P.Binswanger-Mkhize, 2009).
On top of this it seems likely that as the survival incentive that increased the output per hectare is removed[12] then the previously affected farmers are more likely to crop one less harvest per year, similar to the richer farmer’s patterns (Ben Crow, 1988). If this is the case then it is possible that the increased output of small farms is simply an indicator of poverty. This would mean that, hand in hand with ‘New Technology’, as the availability of new technical inputs becomes available via the Green Revolution, then the greatest beneficiaries would be those who become large cash cropping[13] farmers (although the shift to cash cropping is not an immediate one) as are seen in developed countries. The political will to introduce land reform is also hampered by immediate costs to production, which could cause chaos, even if, in terms of agricultural output, evidence points to a “very strong capacity for rapid and continuous growth” afterwards (Cohen, 1978). Thus, while in theory, land reform is almost essential for successful adoption of ‘New technology’, it is exceptionally difficult to administer the changes and the application of ‘New Technology’ must be considered with or without it.
Considering the difficulty of land reform, there were some points that made the adoption of ‘New Technology’ desirable. There were two types of technology, the labour intensive biological: High Yield Variety seeds[14], pesticides and fertilisers, and the capital intensive mechanical: tractors, threshers etc. Firstly, it was expected that certain technologies, that is the biological technology, were ‘scale neutral’. According to Azam, “relatively more severe constraints on irrigation water and credit [for smaller farmers] are not serious enough to have caused any significant differences in yields by small farmers as compared with large farmers” (Azam 1973)[15]. This would mean that, without land reform, adaption of biological new technology could be useful for the development of agriculture in developing countries. The application of these technologies alone should lead to a higher yield per hectare. However, as these technologies were implemented, it became obvious that certain mechanical, capital intensive and labour displacing technologies would be required. This was because, with higher yields in shorter times, it would become far easier to collect the crop in time with the mechanical improvements, than be labour intensive. Also, because the labour had more bargaining power, being in higher demand, the adoption of these tractors, combined harvesters, etc. would help farmers avoid struggles with the stronger labour force. This labour displacing creates unemployment and is not productive for development if it is not absorbed by an industrialised sector[16]. On top of this the adoption of these technologies would end up increasing regional inequality.
In Mexico the green revolution, at first, until the 70s, brought about satisfactory growth through state investment in irrigation and the quick adoption of HYV seeds however this growth soon fizzled out as irrigation and the technical transformation was not transferred to other regions (Griffin, 1991). In India, the lack of irrigation in some regions compared to others demonstrates the limitations of the Green Revolution for developing countries, where irrigated land is often low (such as 25 percent in India by 1975). Partial use of the inputs due to “too little income to buy adequate agricultural machinery, fertilisers or pesticides" (Sloman, 2006), meant that productivity was not fully increased. If you also consider that agricultural land is not homogenous, but differences come between highlands and lowlands, rain-fed and irrigated, crop and ranching (Griffin, 1991), not just throughout the world, but within regions, then it becomes obvious that such inequality is inevitable. Inequality was also accentuated by the types of HYV seeds which were available. Since wheat and rice, the main HYV seeds available were superior foods and not the staple crop they were therefore more expensive, it would require their prices to fall for benefits to accrue to the poor. However the prices did not fall and the growth of other inferior food grains fell or even became negative as farmers switched to the more lucrative HYV seeds, thus leaving the rural and urban poor worse off, as more of their income would have to go towards paying higher prices for food (Ghatak, 1998).
At a glance it seems that the New Technology adopted and Land Reforms that have occurred have been successful, when growth of output increased 25 percent from the 60s to the mid 80s[17]. However, remove China from the calculation and the performance seems much less impressive (Griffin, 1991). Including China average growth per head in Griffin’s example of 20 countries is 1.08 percent, but when China is excluded this falls dramatically to 0.49 percent. In fact, in Africa many countries have experienced agricultural decline (although the Cote d’Ivoire is an encouraging counter-example). In the 80s food grain production increased in countries which, relatively effectively, adopted new technologies (from 128 million tons in 1978-9 to 151.6 million tons in 1983-4) and of these countries India has become an exporter of rice to the world market (Ghatak, 1998). However, this does not mean that the production has been maximised (if it can be). While peasant farmers are seen to aim for maximisation when given the full chance (Ghatak, 1998) it is required that the state make sure enough insurance and credit is available to induce participation of the poorest farmers. (Todaro, 1985) However, the limited outreach of the state leads to misuses of the improvements offered. For example, in India tax evasion was high, the state subsidised credit was taken by rich peasants and landlords and then sold on at higher interest rates to the poorer farmers, and the lobbying of the rich peasants helped to keep food prices high (at the expense of the poor) (Ben Crow, 1988). Especially in sub-Saharan Africa, overall agricultural productivity in all but rice crops fell, and in South America productivity fell.
In conclusion, while there are examples of countries where land reform and ‘New Technologies’ were adapted successfully[18] and development all in all was enhanced by these, there are far more examples where there was ‘New technology’ adapted with partial land reform, or almost none. This has not often brought about desirable results in alleviating poverty and increasing rural standards of living and bringing about improved development throughout the economy, as a strong political will is important to help implement co-operative and credit schemes for poor and landless peasants. Plus, the hope of only using labour intensive biological New Technologies has been quashed and thus the capital intensive, inappropriate technologies have to be adopted if the improved agricultural production is to be continued. However, there are still hopes of improving living standards through new technologies. ‘GM crops[19]’ are new improved seeds being developed, which require less herbicide and pesticide and are less harmful to the farmers’ health and are still higher yielding[20] and which are being developed my research partnerships in developed countries and developing countries[21]. However, these are being hampered by anti-GM sentiment in large demand countries Japan and throughout Europe[22]. The hope is that this may change in the future, as the gains of GM crops are realised (Paarlberg, 2002). Another hopeful development has been the recent land reform policies in Brazil. Since the mid-1990s "land reform on a massive scale [was] improved", for example in the state of CearĂ¡ where poor families obtained financing for purchasing agricultural properties[23] although this was encouraged by falling land prices at the time. Although this land reform seems promising its development should be monitored with caution. (Hans P.Binswanger-Mkhize, 2009)



[1] There are great differences between countries in Africa and Asia, where employment in agriculture is dominant, as compared to Latin America where employment in agriculture is, on average, less dominant. (Griffin, 1991)

[2] Often between 50-80 percent (Todaro, 1985)

[3] (Ghatak, 1998)

[4] Where in Argentina, Brazil and Chile minifundia yield more than twice as much as latifundia, and “the latifundia in Argentina, Brazil, Columbia, Chile and Guatemala are all below… the medium-sized family farms as well”.

[5] Or attempting to make enough money to pay off high interest debts to landlords and/or informal money lenders.

[6] "Poor continued to hold small patches of land that were insufficient even for subsistence farming." (Hans P.Binswanger-Mkhize, 2009)
[7] Or/and maximise rent pay.

[8] As they are satisfied in their income from rents.

[9] Taiwan: under threat of Communism from the mainland and ‘not dependent upon the political support of Taiwanese landowners’, and South Korea: urgency brought about by the Korean War and presented as ‘removing the vestiges of Japanese colonialism’.

[10] In Chile – agrarian reform led to reducing in latifundia but after 1973 coup wheat production fell to that of the 1920s, ‘when population was half of what it was today’, as state economic support to small land holders declined.

[11] In order to convince farmers unwilling to join the market with new technologies due to the risk of a ‘bad year’ when they have tried and tested ways of definitely feeding family. (Todaro, 1985)

[12] By state backed insurance or credit-lending

[13] Crops grown specifically to be sold on the (world) market.

[14] i.e. HYV seeds

[15] via (Ghatak, 1998)

[16] Labour can’t entirely be absorbed at least In the short run even if it is demanded due to the lack of structural mobility of labour, which will have undesirable effects as unemployed become dependents

[17] Somewhat explained by population expansion slowing from its 1970 peak of 2.6 per year to 2 percent per year.

[18] South Korean, Taiwan which were discussed earlier

[19] Genetically Modified crops

[20] Examples are the Bt cotton variety.

[21] Thus are more likely to be suited for developing countries needs, hopefully including more staple foods such as pulses. Also public initiatives such as HarvestPlus, that seeks to reduce micronutrient malnutrition to breed nutrient-dense staple foods (http://www.harvestplus.org).
[22] Then again, if these were going to be exported, perhaps the increased yield would not actually accrue to an improvement for the poor in the countries, unless subsidised by the state

[23] 15,200 families settled on 609 separate properties at a cost of approximately $3000 per family.



BIBLIOGRAPHY

Ben Crow, M. T. (1988). Survival and Change in the Third World. Norwich: Page Bros Ltd.

Cohen, S. (1978). Agrarian structures and agrarian reform. Leiden|Boston: Martinus Nijhoff Social Sciences Division.

Currie, J. (1981). The Economic Theory of Agricultural Land Tenure. Cambridge: Press Syndicate of the University of Cambridge.

Ghatak, S. (1998). Introduction to Development Economics (3rd Edition ed.). Padstow, Cornwall: T.J. International Ltd.

Griffin, K. (1991). Alternative Strategies for Economic Development (91 reprint ed.). Hong Kong: MACMILLAN ACADEMIC AND PROFESSIONAL LTD.

Hans P.Binswanger-Mkhize, C. B. (2009). Agricultural Land Redistribution, Towards Greater Consensus. Washington DC: The World Bank.

Munck, R. (1984). Politics and Dependancy in the Third World; The Case of Latin America. London: Zed Books Ltd.

Paarlberg, J. I. (2002, October 4). Explaining restricted approval and availability of GM cropsin developing countries. Retrieved 3 23, 2010, from http://joelcohen.org: http://joelcohen.org/pdf/RestrictedApproval.pdf

Sloman, J. (2006). Economics (6th Edition ed.). Harlow: Pearson Education Limited.

Terence K Hopkins, I. W. (1998). The Age of Transition, Trajectory of the World-System, 1945-2025. London: Zed Books.

Todaro, M. P. (1985). Economic Development in the Third World (3rd ed.). New York: Longman, Inc.

Followers