11 - Agriculture Flashcards
Current state of agriculture in Africa?
They are the ones most reliant on A but have the worst productivity.
6 contributions from A to growth?
- Product contribution - feed the people.
- Capital contribution - profits from A can be invested in the economy.
- Tax on A - ex tax on land.
- FER contribution - exports in A is a major source of FER.
- Labour/welfare contributions - under recessions, A can absorb unemployed. Food is always needed.
- Market contributions - demands industrial goods.
Hod does A-growth improve development, according to the 4 channels in the model?
- Direct growth effect of A.
- Indirect growth effect of A on non-A growth.
- The participation component measured by elasticity of poverty w/r to growth.
- The share component measured by the importance of A in GDP.
The one that we need to change is the elasticity, i.e. how overall poverty respond to growth in A.
Increase A-productivity in a closed economy leads to… Ex through tech-investments in A.
The wages in A increase –> urban employees will demand higher wages to stay–> growth! So rural and urban poverty are linked bia the wages and therefore when the Land/Labor ratio increases, poverty decreases.
So new tech in A will lead to higher wages in both sectors and higher food prices and also more supply. So over time people will start demanding consumables from the industries and people can move to cities and work in factories.
So if we move A-labor to industry, can we grow then?
No, ration Land/labor increases by the output will not increase. People will prioritize food with their min.wage and the prices of food will increase –> wages in A increase –> people move back.
Technological improvements in the industrial sector, closed economy:
Productivity in industry will lower the prices and therefore their relative w goes up –> demands more A-goods. IF migration, we will increase wages in both sectors. But this will decrease the Land/labor and prod decrease in A and lower supply. Greater demand for A-goods will stop migration and wages in industry will not increas.
–> tech improvements in industry have no long-term growth effect bc people will not consume enough consumables. Wages in A have not changed (first up then down due to migration) so cannot demand more M.
If open economy, what changes in the model?
Now migration will not affect prices, the surplus is exported and shortfall imported. Less reliant on domestic A production –> migration and specialization is allowed and in closed economy the prices went up in A when people migrated from it bc reduced productivity and increased demand for A, so people moved back to get the higher wages. But now we can import so we can migrate to cities.
Key to succeed in industrializing?
Cannot ignore A sector because if you want to build up your industry, you must import capital and specialize in industry and this requires FER, which you must get from the A-sector. Ex China exported silk to be able to import capital into M.
Determinants of A-growth: (5)
- Price policies - taxes, tariffs, price ceilings etc.
- Agricultural markets - structure of the food chain, connection btw farmers to the final customer. Ex do they even know the market price?
- Tech change - Green revolution, better seeds –> demand more labour. + less vulnerable to weather chocks.
- Political economy of technological biases - farmers lobby for public funds to research land/labor saving tech.
- Farmers decision - tech is available worldwide, but it must be adopted………
More about farmers decision in adopting tech:
Reasons for why they don’t:
- Cognitive load - cannot make long-term hard decision bc their mind is uptaken by stress, anxiety.
- Profitability - not enough.
- Information/Learning - often missing.
- Credit/insurance market failures - often unavailable.
- Risk aversion - focus on feeding themselves (subsistence agriculture), not becoming the biggest/best farm. Uncertainty makes them risk averse since their family’s life are at stake.
How do property rights affect agriculture?
Since the landlords often own the land, there are two ways of paying him:
- Share cropping - a share of the food production.
- Fixed contract - fixed rent usually paid in cash.
The best one is the fixed contract - put more effort in the farm bc we know that we get everything extra after paying the rent.
Policy solutions for agriculture:
There are many, like insurance, government subsidies, tech training, better info about market price etc. BUT the main ones are: Land reform and access to cheaper credit.
Land reform
L ownership unequal –> a land reform can redistribute the rights of ownership in favor for the ones working on the fields. —> This should create incentives for more investments since they know that they own the land.
Microfinance
MF helps solving the two problems with the credit market: MH and AS. Converts social capital into collateral and member of the community know each other well and therefore we let them create their group that they trust.
Rotating who gets the loan. Default will affect all other members…
Benefits: reaching the target group better + loan repayment much higher than regular loans.
Issues with microfinance
Hard to diversify the risks, same type of people in same area (high risk). COuld solve by having bigger groups but then free-riding becomes a problem where a default doesn’t matter as much….
