GROWTH & DEVELOPMENT 6 (2009-2010) ROLE OF AGRICULTURE

ECONOMIC APPROACHES TO AGRICULTURE PRE-1980

Following the Second World War, orthodox theory was dominated by
modernistic views that envisaged a linear transition of development for
poor countries (see Figueroa, Diao et al {section 2}). This transition
would involve a shift from traditional predominantly agrarian economies
to capitalist predominantly industrial economies.
Key assumption was that there was a large surplus of labour in rural
areas, which meant (1) as industry expanded in size, it could draw in
workers from agriculture that would mean that industrial wages would not
rise dramatically and (2) agricultural output would not suffer as labour
withdrew. In addition, the structuralist view was concerned about a
secular decline in relative prices of primary commodities.
Critique: 1) Overly discounted the role of primary product exports in
the generation of precious foreign exchange (Sender & Smith, Unctad). 2)
Failure to focus on agriculture meant that performance of agricultural
sector was poor with food shortages and small market for industrial
goods, both of which hampered overall growth (Kay). 3) Limited
attention to agricultural reform meant that social transformation was
hindered (Kay).
NEO-CLASSICAL VIEWS AND AGRICULTURES ROLE IN STRUCTURAL ADJUSTMENT
The mainstream view (Schiff & Valdes) includes a general critique of
state-led industrialization. Instead, the preference was for
specialisation according comparative advantage, which it was assumed
would be in agriculture for most poor countries. Rather than a focus of
shifting employment from one sector to another, growth was to come from
higher productivity in agriculture due to improved incentives (Oya) and
it was hoped that this growth would be pro-poor (Dorward).
Reform package included:

Trade liberalization, seen as being a major boost for agriculture.

Reduction of subsidies to agriculture, in the context of reduction
of subsidies generally.
Privatisation of agricultural development institutions (such as
those that had been established in many countries to provide
credit or inputs).
Focused spending on those areas where the market would find it
difficult to provide - irrigation, research, and extension
services.

Critique (Unctad, Oya generally):

1) How excessive was taxation on agriculture? The assumptions upon
which price reform was thought to benefit agriculture were not always
valid as for example many countries provided considerable support to
food production (UNCTAD).
2) Evaluation of impact of price reforms on agriculture during
structural adjustment (Oya, Dorward) suggests that it has been difficult
to change relative prices and even when this has happened, the supply

response has not been forthcoming. Constraints include: inadequate

basic infrastructure, missing or imperfect markets for output, land,
labour and credit, supply problems with inputs and basic consumer goods
demanded by farmers, lack of appropriate technological packages, high
levels of risk and fundamentally aspects of social organisation, such as
gender inequality. Some evidence that structural adjustment has not
only failed to relieve constraints but has actually aggravated some.
Conclusion is that liberalisation package is contradictory, ahistoric
and reductionist. Getting the prices right, is not sufficient because
agricultural supply response is constrained by structural factors. What
instead is needed is a policy to promote profitability of investment in
agriculture and lower risk by providing stable environment and removing
technical and financial constraints on capacity and willingness to
invest (Oya).
THE WIDER ROLE OF AGRICULTURE
What does this mean for role of agriculture? Recognition of limitations
of agriculture-led path (Oya, Unctad) does not mean that one should
return to industry-only focus.
Prowse & Chimhowu and Xavier et al provide evidence that agricultural
growth is strongly pro-poor. Xavier et al suggest that this is
particularly because of the impact of agricultural growth on employment,
reduce the real costs of food and multiplier impacts of increased rural
consumption. Prowse and Chimhowu suggest that agricultural growth is
necessary for a reduction in poverty but not sufficient. Agricultural
growth is particularly unlikely to be sufficient in the absence of good
infrastructure, sufficient education and effective information services.
In addition (and linked to this), careful reading of earlier successful
and unsuccessful structural transformations suggests that agricultural
has several key roles to play. The focus on relative by prices by
Schiff and Valds (1998) misses these. Other authors see the role of
agriculture as being much wider (Mundle, Kay, section 2 of Diao et al)
including the provision of: food/inputs, labour, market for
manufactures, finance and foreign exchange. But only necessary up to a
certain level of development and then industry will generate its own
surplus?
A major dilemma in agrarian economies is that policies designed to
increase the contribution of the agricultural sector to the rest of the
economy can impede growth, thereby failing to attain their original
objectives. Comparative analysis has shown that a particularly effective
strategy is a two sided approach in which the State taxes agriculture,
but at the same time counterbalances this resource outflow by making
adequate investment in basic infrastructure for agricultural production
and helping to introduce a stream of innovations needed to enhance
productivity. Thus, surplus extraction takes place, but agricultural
performance is not hampered. Also agricultural plundering may not be
negative for economic growth overall if it is reinvested in productivity
raising avenues elsewhere in economy. Win-win situation described by
Kay for South Korea and Taiwan. Compare this to his story on Latin
America or the lose-lose cycle described by Sender & Smith for Tanzania.

Question is getting the economically, socially and politically feasible

balance (Kay, Saith). The political economy issues raised by any form
of surplus extraction from agricultural are complex but are crucial to
understanding whether a win-win situation can be achieved (Kay).
To end: Does agriculture face greater constraints in the future?
Dorward question potential for role of agriculture in promoting
overall growth. Global and internal conditions have changed, as have
the constraints on the character of agricultural policy. Agricultural
policy must face more difficult challenges, while also more limited
ability to utilize those policy mechanisms that worked in the past.
However, agricultural performance will continue to be important for the
poor and will continue to impact on the performance of other sections of
the economy through the roles that we have identified.
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Dr Deborah Johnston
Department of Economics
SOAS, University of London
Thornhaugh Street, Russell Square
London WC1H 0XG, UK