Toward an Efficient Agrarian System under Globalization

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Toward an Efficient Agrarian SystemunderGlobaliz
ation
WBI Cambodia Seminar, 28 29 June 2005

• Yujiro Hayami
• Foundation for Advanced Studies in International
  Development

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Agrarian System
Agrarian Structure
Agrarian Institutions

• Rules to combine land and labor
• for agricultural production
• (formal laws and social norms/customs)
• Property rights on lands
• exclusive rights to
• use for productions
• sell
• lease
• pawn (collateral)
• Contracts on land/labor transfers
• land tenancy
• labor hiring
• Efficient use of land

• Who own farm lands?
• Distributions of
• land ownership
• Who use farm lands?
• Distributions of
• operational land holdings
• e.g., small family farms
• v.s. large plantations (estates)

Historical path dependent (ad. hoc. events,
e.g., colonialism, revolution and war,
matter)
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Family Farms PlantationsunderTrade Integration

• Lecture 1

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Export for Global Market
Plantations
Global demand

Exporter
centralized management

large volume in standardized quality
Family farms

Decentralized hierarchy of traders/processors
for bulking

• Different labor opportunity costs
• Different information on producers
• Scale economies in transportation / processing

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Postwar Paradigm Change
T.W. Schultz, Hla Myint, W.A. Lewis
Peasants (small family farms)
irrational tradition-bound
poor but efficient responsive to opportunities
Demise upon modernization
Carrier of modern agriculture

• Green Revolution
• Growing dominance of peasants over plantations
• Failure of collective farms
• Output boost from peoples communeto private
  responsibility system

Plantations modern sector
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Estates versus Family Farms

• Estates (agribusiness plantations, cooperatives,
  state farms, etc)
• Hired Wage Labor
• Incentive to shirk
• Hierarchical supervision
• Efficient if (a) scale economies exist
  and/or
• (b) close coordination is needed between
• production and processing
• Ability to build Internationalization of
  investment returns
• public infrastructure Advantage in
  initial land-opening stage
• Preemption of land by colonialism
• Family farms
• Unpaid family labor
• Incentive to work hard

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Empirical Facts

• Scale economies
• Do not operate in agriculture at the field
  production level, but
• diverse ecological conditions over wide
  area difficult to monitor / supervise
  hired labor
• Do operate at the level of marketing and
  processing
• Family farms shares of outputs and market sales
  increased as population density rose and
  infrastructure developed.
• Plantations conflicts with local community and
  ecology increased.
• monoculture soil degradation
• insect / pest incidence use of chemicals

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Agrarian structure

• Indonesia/ Stratified peasants
  ------------------- rice
• Malaysia landlord-cum-owner
  owner-cum-tenant
• Plantations ------- export crop
• Philippines Landless peasants ( tenants )
  ----- rice
• vs non-cultivating landlord
• Plantations -----------------------------
  export crop
• Thailand Land - owing peasants --------------
  rice/
• (owner farmers) export crop

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Promotion of Family farms

• Provision of public goods
• Technological Ag. research/extension,.
  Labor-using/scale- Irrigation, etc
  neutral
• Market Transportation / communication
• infrastructure
• Reduce disadvantage in
• Deregulation / liberalization
  small-lot product
• sale / input purchase
• Property right protection /
• contact enforcement mechanism
• Enhancing communities capacity in the provision
  of local public goods

Unsustainable to Sustainable farming slash
burn irrigated rice in lowlands

agro-forestry in uplands
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Third alternative contract farming

• Ag-business firm or cooperative
• Technical guidance/credit

as principal organizer
Small family farms
Processing plant and/or marketing center
Timely delivery of product
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Agrarian Structure and Market Development Some
Examples in Southeast Asia

• Lecture 2

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Community, market and state in the economic system
Market
State
Competition
Coercion
Private goods
Global public goods
Community
Cooperation
Local public goods
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Global Demand Linkage with Farmers

• Market
• Trader / processor network
• Marketing infrastructure
• Property right protection/ contract
  enforcement

Farmers
Community Trust/reputation/ ostracism
State Laws/courts/ police
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From Peasant Marketing to Global Marketing

• Peasant Marketing
• Non-storable commodities Local market
• Direct sale by producers
• Storable commodities Local/distant market
• Loose decentralized hierarchy
• Small Large Trans-shipers/ collectors colle
  ctors processors
• Community relationship
• Structural determinants
• Different labor opportunity costs
• Different information on producers
• Scale economies in transportation/process
  ing
• Global Marketing
• Non-storable commodities to distant market

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Channels of local rice marketing in Laguna
(Trans-shipper)
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Traditional peasant marketing system

• Efficient for traditional subsistence crops
• Inefficient for the new crops of rising global
  demand
• Plantation High labor management cost
• Contract farming Efficient only with efficient
  contract enforcement mechanism
• Can be organized by either trans-national firms
  or indigenous entrepreneurs !

storable with small marketable surplus, e.g.,
rice, corn, soybean, etc.

perishable with large marketable surplus, e.g.,
flower, fruits, vegetable, etc.
Inefficient land use (monoculture) and high
capital intensity
State (law, court, police) high cost community ?
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Operations of an inter-village collector for
vegetable marketing in an upland West Java,
Indonesia
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Credit costs for vegetable producers under
alternative credit arrangements in the Majalengka
District, West Java, Indonesia, 1990
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Modern Sub-Contracting System
Parts supplier
First tier
Second tier
Technical guidance/ credit
Assembler

principal organizer
Timely delivery of quality product
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Policies to promote contract farming

• Make market competitive and contestable open
  entry and exit
• Invite more than one principal to operate.
• Avoid granting subsides and monopoly
  rights to any one particular principal.
• Especially avoid regional franchising
  monopoly collection from producers in a
• certain area.
• Government act as a fair third-party mediator
• try to promote cooperation through
  persuasion with rich information
• Supply market information
• grading, standardization of
  measures, commodity exchange, crop forecasting,
• regular quotation of market prices
  (local and international) through mass media
• Protection of property rights and contracts
• e.g., land titling collateral
  for credit
• Supply hard infrastructure
• roads, electricity, IT facilities