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Brown EC 151 - Chapter 15 – Agriculture

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Chapter 15 – Agriculture, page 1 of 7• the importance of agriculture in developing countries:if one is concerned with poverty, then agriculture in LDCs is important to considerbecause people in rural areas tend to be poorer than people in urban areas, and LDCshave a large proportion of people living in rural areas (70% in some cases)agricultural development is critical for improving the living standards of poor people,feeding the urban population at low prices, and as a source of labor for the higherproductivity services and industrial sectors; also, for many countries, agriculturalexports are a major source of foreign currencyagricultural surplus is potentially a source of funds for investment; socialist countries(including China, North Korea, and Vietnam) used agriculture as a primary source ofcapital accumulation; these countries forced farmers to sell crops at below market pricesto the government, which kept prices low for the urban population; because of the lowprices for agricultural goods, state-owned industries were able to pay low wages; thehigh profits earned by state industries (because they were able to pay low wages) wereused for capital formation – thus, agriculture indirectly subsidized investment byallowing state industries to pay low wages and earn high profitsin some cases, the lack of funding to agriculture led to unbalanced investment andharmed the economy• agriculture versus industry:in developing countries agriculture and industry differ institutionally andtechnologically:1) institutionally – farmers tend to be self-employed or farms are run by a family, butindustry is run by for-profit firms2) technologically – agricultural technology must be adapted to local conditions, butindustrial technology is mostly independent of local conditions (although it couldadapt to local labor and capital costs)because the method of cultivation and the variety of crops that can be grown mustbe adapted to local conditions (climate, soil, etc.), intervention by government inagriculture might not be as successful as intervention by government in industrybecause government does not have the information about local conditions necessaryto produce efficiently; the variability of local conditions could also explain whyextension services are not very useful in developing countries that lack local researchcapabilities• history of agriculture:• agricultural methods lie along a continuum ranging from least to most intensive(intensive refers to the amount of labor applied to the land, the frequency of land use,and the amount of inputs to farming):slash-and-burn shifting cultivation shorter fallow continuous multicropping withcultivation cultivation irrigation and animalhusbandryleast intensive most intensiveChapter 15 – Agriculture, page 2 of 7slash-and-burn cultivation – land is cleared by slashing tall vegetation and burning therest, then seeds are planted in the ground; because the fertilizer is the debris from theburning and existing soil nutrients, this method can only be used for about 2 years on agiven plot of land; this technique is used where population densities are low and peoplecan move from one plot of land to anothershifting cultivation – this is similar to slash-and-burn cultivationshorter fallow – the fallow periods decrease (down from the 30 year fallow periods withslash-and-burn cultivation)continuous cultivation – rotations with one year fallow and two years cultivationmulticropping with irrigation and animal husbandry: the same land is used for 2-3 cropsin a year; irrigation is used, animals supply fertilizer, and a large amount of labor isnecessary; the yield per unit land is high; this method is used where populationdensities are high• technological change in agriculture began long before modern agriculture, whichemploys machines and chemical fertilizers; for example, plows were improved overtime, better harnesses for animals were developed, and biological adaptations weremade (through selective breeding, for instance)following colonial expansion in the 16th century, crops spread among Oceania, the NewWorld, and the Old World helped agriculture develop (for example, corn [maize] wasintroduced to Africa from the New World; coffee came to Brazil and Columbia fromAfrica)• the two modern packages of technology:two different technological packages account for increased agricultural productivityover the past 50 years – the mechanical package and the biological package:1) the mechanical package – in the mechanical package, there is high substitutabilitybetween labor and machinery:laborMachinerybecause labor is a good substitute for machinery, mechanized agriculture is notnecessarily a sign of agricultural progress, especially if labor is relatively abundant;for instance, in Bangladesh, India, and China, there is surplus agricultural laborChapter 15 – Agriculture, page 3 of 7available – mechanization will increase the yield per worker, but not yield per unitland; increased mechanization will increase unemployment and misallocate scarcecapital; some countries have made the policy mistake of encouraging mechanizationbecause a) they believe that if industrialized countries use it, then it must be good fordevelopment and b) people selling the machinery convince government officialswith bribes to support the purchase of machinery2) the biological package – in the biological package, increased fertilization andagriculture lead to higher yields:irrigationchemical fertilizerthe elasticity of the isoquants in the biological package is lower than in themechanical package because fertilizer and irrigation must be added in the properproportion• contractual arrangements in agriculture:there are several ways to organize agriculture when the owner of land and the farmlaborer are not the same entity:contractual arrangements1) fixed-rent tenancy – the land is rented out to the farm worker at a fixed amount ofrent2) sharecropping – the tenant gives a proportion of the harvest or the value of theharvest to the owner of the land (often 50%)3) wage-labor – the landowner hires farm workers on a wage (based on time) or apiece-rate (based on productivity)incentives to work1) fixed-rent tenancy – the incentive to work is highest in fixed-rent tenancy becausewith the amount going to the landowner fixed in advance, the farmer earns 100% ofthe value of his marginal product; thus, the farmer has a strong incentive to be moreproductive because


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