Title: Economics of Food and Agriculture in International Development Week 14 April 27, 2004 WrapUp and Con
1Economics of Food and Agriculturein
International Development Week 14 April 27,
2004 Wrap-Up and Conclusions
2The story line
- 1. Introduction
- Demographic transition structural
transformation - Nutrition and food demand
- 2. Households
- Production, technology adoption and resource
use - 3. Markets
- Prices, policies, and political economy
- 4. Countries
- Agriculture in growth and trade
- RD and the future of agriculture
3From week 1
- Economics
- explain observations in a particular way
- as an equilibrium
- (a mutually acceptable transaction)
- among rational people
- (who optimize something,
- subject to constraints)
4Some strengths limitations of economics
- I show life as it is, but stylized
- (Marcel Marceau in an NPR interview, 25 March
1998) - In order to know anything, it is necessary to
know everything, but to talk about anything, it
is necessary to neglect a great deal. - (Joan Robinson, Economica 1941)
- Mathematicians are like Frenchmen whatever you
say to them, they translate into their own
language, and all at once it is something
completely different. - (Goethe, Maxims and Reflexions, 1829)
5What do we mean by international development?
- development change over time
- gain new things accumulation, innovation,
growth - lose old things natural resources, social
relationships - Im all for progress its change I cant
stand. (Mark Twain) - If a palace rises beside a house, the house
shrinks. (Karl Marx) - international differences across countries
- one path, or many? what can we learn from
success/failure? - All happy families are alike. (Leo
Tolstoy) - international development interactions
between us - trade, investment, migration, technology
transfer - Does our wealth come from their poverty?
- Can our wealth help alleviate their poverty?
6The structural transformation agriculture
declines
Agricultural Employment as a Share of Civilian
Employment and Real Farm Output as a Share of
Real GDP
SOURCE U.S. Department of Commerce and the
Federal Reserve Bank of St. Louis. Reprinted
from K.L. Kliesen and W. Poole, 2000.
"Agriculture Outcomes and Monetary Policy
Actions Kissin' Cousins?" Federal Reserve Bank
of Sf. Louis Review 82 (3) 1-12.
7but agricultural output does not fall
Source Drawn from U.S. Bureau of Economic
Analysis data ltwww.bea.doc.govgt.
8and neither do farmers incomes
Real income per farm and productivity in the U.S.
Percent / index value
Thousands of 1992 dollars per farm
Source BL Gardner, 2000. Economic Growth and
Low Incomes in Agriculture. AJAE 82(5)
1059-1074.
9The number of farmers rises and then falls
10The speed of structural transformation is closely
linked to the speed of demographic transition
- Given the size and growth of the nonfarm sector,
the key determinant of the number of farmers
(and hence area/farmer) is population growth
births, deaths and migration
11Because Africas birth rates remained high after
death rates fell rapidly, it faces an unusually
rapid and long period of population growth
12and because Africas cities are small, although
they grow fast Africas rural population will
keep rising, while Asias rural population begins
to shrink
13From week 2
- Food consumption and nutrition
14Source Computed from World Bank (2001), World
Development Indicators.
15Source Computed from FAO (2000), The State of
Food and Agriculture 2000.
16Source Computed from FAO (2000), The State of
Food and Agriculture 2000.
17For Africans with limited non-farm income,
nutrition is closely linked to food production
18From week 3
19Economists think of individuals behavior as
constrained optimization
the price of b has no effect on this point
Quantity of a, all other goods
Indifference level at the initial point
The new expenditure line is steeper slope
-Pb/Pa
The new indifference level is lower
Slope of expenditure line -Pb/Pa
Quantity of b goods
higher prices induce substitution and reduce
real income
20and represent the aggregate of many consumers by
a demand curve
When income rises, consumers demand curve shifts
(usually to the right,
Price
as consumers buy larger quantities at each price)
Quantity Consumed
21Economists describe demand in terms of its
elasticity with respect to price
Price (/lb)
Inelastic demand demand curve is
relatively steep when price rises,
expenditure (PQ) rises e lt 1
Elastic demand demand curve is relatively
flat when price rises, expenditure (PQ)
falls e gt 1
Quantity Consumed (lbs/yr)
Unit-elastic demand demand curve is such
that when price rises, expenditure (PQ)
stays constant e 1
22Qty. Consumed (kg/year)
Elasticity is also used with respect to income
30
inelastic or normal
negative or inferior
necessary
20
Income elasticity (e?Q/ ?Y) is closely linked
to income level income-elastic (luxury)
goods e gt 1 income-inelastic (normal)
goods 0 lt e lt 1 negative-elasticity
(inferior) goods e lt 0
elastic or luxury
10
0
500
1000
1500
2000
2500
3000
3500
Income (/year)
no effect
23Average income and price elasticities of demand
in Indonesia (estimated in the 1970s)
inelastic
inelastic
elastic
elastic
(Note elasticity is ?Q/?Y (income) or ?Q/?P
(price).)
24Income elasticities by income group, rural
Brazil, 1974-75
(inferior for everyone)
(luxuries for the poor)
Effect of income growth among the poorest 30 in
Brazil, 1974-75
25Calorie intake by nutrient group and income level
income level in 1962 (log scale)
The poorest eat mainly carbohydrates income
growth permits an increase in fats and proteins
calories from each nutrient group (percent of
total)
26At high (U.S.-level) incomes, weve been
switching back to more carbohydrates.
27Food is a private, not a public good, but there
may be food-market failures and hence an
opportunity for public intervention to improve
social welfare
Weight-for-height (WHZ) and height-for-age (HAZ)
of children in Mali, relative to international
norms
The most severe nutritional deficits occur in a
relatively brief period
28From week 4
29Optimality implies that
Quantity of a, all other goods
the observed point is on the highest possible
indifference curve
Qa
impossible
inefficient
Qb
Quantity of b goods
30A key optimality condition is that
the observed point is where the slopes of the
two curves are equal
Quantity of a, all other goods
the slope of the indifference curve is the
marginal rate of substitution in consumption
(MRS)
Qa
the slope of the PPF is the marginal rate of
transformation in production (MRT)
at the optimum, slopes are equal
MRT MRS ?Qa/?Qb ?Qa/?Qb
Qb
Quantity of b goods
31Without trade, its a Robinson Crusoe economy
the diagram is used to interpret observed
quantities as an optimum for a self-sufficient
individual. It is also used to describe
general equilibrium in a closed economy
Quantity of a, all other goods
Qa
All these points are technically efficient (on
the PPF), but give a lower income and a lower
indifference level
Income line
Qb
Quantity of b goods
32What if trade with others becomes possible?
Quantity of a, all other goods
If others place a higher value on b, and offer to
trade at a higher Pb/Pa ratio, wed have a
steeper income line
Qa
Old income line QaExp./Qa(Pb/Pa)Qb
New income line slope (Pb/Pa)
Qb
Quantity of b goods
33Trade allows us to separate production from
consumption
by accepting the prices offered in trade, we can
get to a higher income and indifference level.
Quantity of a, all other goods
Qa
Qa
we have to specialize in production of b
and then sell b to buy other goods
Qa
Qb
Qb
Qb
Quantity of b goods
34Separability in production and consumption
allows us to overcome diminishing returns in home
production and consumption
Quantity of a, all other goods
at optimum consumption, MRS -Pb/Pa
Qa
Qa
at optimum production, MRT -Pb/Pa
Qa
Qb
Qb
Qb
Quantity of b goods
35Implications of separability between production
and consumption
Quantity of a, all other goods
consumption depends only on indifference curves
and relative prices
Qa
Qa
production depends only on PPFs and relative
prices
Trade depends on all three
Qa
Qb
Qb
Qb
Quantity of b goods
36The gains from trade do not depend on the
direction of trade
Quantity of a, all other goods
if others price of b were low, we could produce
less and consume more of it
Qa
Qa
Qa
Qb
Qb
Qb
Quantity of b goods
37A partial equilibrium view of the same problem
Price of b
Supply curve
Separability means that
Ptrade
production depends only on the supply curve and
prices
Pautarky
consumption depends only on the demand curve and
prices
Demand curve
Qty. of b
Qproduced
Qconsumed
Qtraded
When price in trade is high, we gain from
exporting
38Again, the gains from trade do not depend on the
direction of trade
Price of b
Supply
Supply
Ptrade
Pautarky
Pautarky
Ptrade
Demand
Demand
Qty. of b
If price in trade were low, wed gain from
importing
When price in trade is high, we gain from
exporting
And separability holds in either case.
39From week 5
40A new technology helps by allowing more output
with given resources, shifting the PPF out
Quantity of a, all other goods
allowing consumption at a higher indifference
level.
new technology allows more production from given
resources
Quantity of b goods
41The same logic can be applied to input use,
along an Input Response Curve
Qty of output (e.g. corn)
Optimal input use is at the highest possible
level of profit
Profit PoQo - PiQi
Qo Profit/Po (Pi/Po)Qi
This negatively-sloped part of the curve cannot
be optimal, so would not be observed
The slope of the input response curve is the
inputs marginal product. At optimum
production, ?Qo/?QiPi/Po
This convex segment of the curve cannot be
optimal, so would not be observed
Qty of input (e.g. labor)
42A change in prices leads to movement along the
curve
Qty of output (e.g. corn)
if inputs were free, production would be here
if the Pi/Po ratio were steeper than this,
profits are zero and production shuts down.
A more favorable profit line is flatter (its
slope is Pi/Po)
With a lower relative price of the input, the
farmer can afford to apply more of it,
increasing use until the (declining) marginal
physical product just equals the price ratio.
Qty of input (e.g. labor)
43A new technology shifts the input response curve
upwards
Qty of output (e.g. corn)
profitable innovations often increase the use of
an input
these are input using innovations
Qty of input (e.g. labor)
44Innovations vary widely in their effects on
production
Qty of output (e.g. corn)
profitable innovations may lead to lower use of
inputs
these are input saving innovations
Qty of input (e.g. labor)
45Similar ideas apply to farmers choice among
inputs, along an isoquant
Qty of input 1 (e.g. machines)
Optimal mix of inputs is at the lowest possible
level of cost
Cost P1Q1 P2Q2
Q1 Cost/P1 - (P2/P1)Q2
Slope of cost line -P2/P1
The slope of the isoquant is the marginal rate of
substitution among inputs. At optimum
production, ?Q1/?Q2-P2/P1
Qty of input 2 (e.g. labor)
46When prices change, farmers move along the
isoquant
Qty of input 1 (e.g. machines)
For example, when labor becomes more expensive
relative to machinery, the initially-observed
point is no longer optimal
now the lowest-possible cost line uses less
labor and more machinery.
Qty of input 2 (e.g. labor)
47A new technology shifts the isoquant inwards
Qty of input 1 (e.g. machines)
A Hicks-neutral innovation keeps the inputs in
the same proportion, (along a ray from the
origin), at the given relative prices.
Qty of input 2 (e.g. labor)
48Innovations vary widely in their effects on input
use
Qty of input 1 (e.g. machines)
This shift reduces the need for labor
This shift reduces the need for machines
Both happen to give the same cost reduction,
with very different changes in input use
Qty of input 2 (e.g. labor)
49Innovation often responds to price differences
and changes
Draft power per worker and the power-labor price
ratio in the US and Japan, 1880-1990
(changes in an isoquant diagram)
Source Hayami and Ruttan (1985)
50Real-life changes both move along and shift the
curves
(kg/ha)
Fertilizer per hectare and the fertilizer-land
price ratio in the US and Japan, 1880-1990
(changes in an input-response curve diagram)
Source Hayami and Ruttan (1985)
51Countries differ in both the direction and speed
of innovation
52African agricultural productivity started low
and stayed there
53Adoption of individual technologies typically
follows S-shaped curves, whose start date, speed
and ceiling varies widely by region
54Productivity growth is the cumulative result of
many sequential innovations
55Smaller farms are faster adopters of land-saving,
divisible innovations larger farms are faster
adopters for labor-saving, lumpy innovations.
56Most African farmers still use old seed types
new seeds are coming out now
Source Calculated from data in Evenson and
Gollin, 2003.
57Another reason for Africas lag is simply that it
has had less local research
Source Calculated from IFPRI and FAOStat file
data
58In general, but particularly in Africa, crop
improvement involves multiple innovations
Genetic improvement
Agronomic improvement
(by scientists, using controlled trials)
(by farmers, using land labor)
59Measuring welfare gains from innovation with
trade (when price is fixed)
Qty. of a goods
Price of b goods
Qty of b
Qty of b
60Measuring welfare gains from innovation without
trade (when supply affects price)
Qty. of a goods
Price of b goods
Increased productivity of b lowers its price,
relative to other things. This helps consumers of
b, but on balance are producers better off?
a lower price of b is a lower Pb/Pa price
ratio, hence a flatter price line
Qb
Qb
Qb
Qb
61Measuring welfare gains from innovation without
trade (when supply affects price)
Price of b goods
Consumer Surplus Gain AB
Producer Surplus Change C-A
Net Econ. Surplus Gain BC
A
B
If demand is very inelastic, and supply is very
elastic, then innovation causes producer surplus
to fall. This is Cochrans Treadmill, pushing
ag. producers to become ag. consumers.
C
Qty of b
62From week 6
63Resource stocks in agriculture
- Typical trajectory of resource use over time
- is a continuum from abundance to scarcity
- depletion (when resource is most abundant)
- conservation management (when it becomes scarce)
- replenishment (when it can be regenerated)
- substitution (when alternatives are found)
- Examples from agriculture
- soils and soil nutrients
- water and soil moisture
- crop genetics
- interactions with other species
- (biodiversity and ecosystem services)
64Common property in agriculture
- Typical pattern of property rights among people
- is a continuum from private to public
- private property (freehold ownership)
- limited user rights (restricted ownership)
- common property (user group is well-defined)
- public goods (all potential users have open
access) - Examples from agriculture
- land cropped area is typically private,
- grazing land is typically common property
- water enclosed surface water is typically
private, - groundwater is usually common property
- climate one of the few truly public goods
65Are farmers choices optimal?
- If farmers are already doing the best they can,
subject to the constraints they face, what could
be improved? - For example
- In poor countries, farmers typically engage in
soil mining, depleting soil nutrient levels - In wealthier countries, farmers apply
fertilizers, herbicides or pesticides, causing
runoff damage. - How can we take this into account, to design
appropriate interventions?
66How do inputs enter farmers optimal choices?
Whats missing from this picture? The curves
include effects of soil degradation on the farm,
but not the effects of runoff on other people.
Qty. of corn (bu/acre)
Qty. of corn (bu/acre)
Qty. of labor (hours/acre)
iso-profit (slopePf/Pc)
iso-revenue (-Pb/Pc)
iso-cost (slope-Ph/Pm)
Qty. of fert. (lbs/acre)
Qty. of beans (bushels/acre)
Qty. of herbicide (liters/acre)
67To include runoff costs of input use, we would
add water users costs to prices paid by farmers
Qty. of corn (bu/acre)
Qty. of labor (hrs/acre)
slope (Pfrunoff)/Pc
slope Pf/Pc
slope -(Phrunoff/Pl)
runoff costs added to farmers cost
slope -Ph/Pl
Qty. of fertilizer (lbs/acre)
Qty. of herbicide (liters/acre)
68so that from the whole societys point of view,
a lower level of input use would be optimal
Qty. of corn (bu/acre)
Qty. of labor (hrs/acre)
slope (Pfrunoff)/Pc
slope Pf/Pc
slope -(Phrunoff/Pl)
slope -Ph/Pl
new optimum from adding runoff costs to farmers
cost lower inputs, lower outputs, more work for
farmers.
Qty. of fert. (lbs/acre)
Qty. of herbicide (liters/acre)
69How can the country movefrom point A to point B?
Qty. of corn (bu/acre)
Qty. of labor (hrs/acre)
slopesocial costs slopefarmers costs
A
optimum at social costs
B
B
optimum at farmers costs
A
Reductions in input use to take account of
off-farm costs to drinking water
70To reach the social optimum, wed need either a
tax, or a regulation
Qty. of corn (bu/acre)
Qty. of labor (hrs/acre)
tax on input use to induce change
A
B
B
A
rules specifying new input use levels
71- We can see the same thing in partial equilibrium
Total social costs
Marginal external cost to water users
Farmers marginal costs (market supply curve)
P
Pfree
Buyers willingness to pay (market demand curve)
Q
Qfree
Qty of output
For simplicity, external costs are drawn
constant per unit of output in reality, there
may be variation.
72- This allows us to compute economic surplus
effects of moving to the socially optimal Q
Total social costs
Marginal external cost to water users
Farmers marginal costs
P
Net economic surplus gain from moving to Q
Pfree
Total economic surplus cost of runoff to water
users
Q
Qfree
Qty of sheep grazed on common pasture
73We can see all kinds of externalities
MC
MC
WTP
WTP
Qe
Qe
MC
MC
WTP
WTP
Qe
Qe
74External costs in production (e.g. livestock
odors)
External benefits in production (e.g.
agro-tourism)
MCtotal
MC
MC
MCtotal
EXTERNAL COST
EXTERN. BENEFIT
WTP
WTP
Livestock
Qe
Qe
Q
Q
Agri-beauty
External costs in consumption(e.g. antibiotics)
External ben. in consumption(e.g. education)
MC
MC
EXTERN. BENEFIT
EXTERNAL COST
WTPtotal
WTP
WTP
WTPtotal
Qe
Qe
Q
Q
Pesticides
Education
75The economic-surplus effects of moving to Q
MCtotal
MCprod.
MCprod.
MCtotal
Qe
Qe
Q
Q
WTPtotal
WTPcons.
WTPcons.
WTPtotal
Qe
Qe
Q
Q
gains/losses to victims/beneficiaries
net econ. surplus gain from moving to Q
76- The Tragedy of the Commons Linking
externalities to resource degradation over time
Garrett Hardin (1968) argued that markets lead to
degradation of common resources, as each user can
ignore his/her effects on others e.g. grazing
areas
all shepherds marginal cost
Econ. surplus loss due to overuse of common
property
MEC cost to others of ones grazing
one shepherds marginal cost
Shepherds marginal revenue
Q
Qfree
Qty of sheep grazed on common pasture
Here, external costs are drawn increasing in
output, but they could also be non-linear, with
thresholds, etc.
77From Week 8Rural Markets
78Food and agriculture involve rural markets
- In rural markets, people are far apart
- so transaction costs are relatively large.
- Transaction costs may be the most important
difference between rural and urban life - wide variation in prices over space and time,
- and large welfare effects of transport or
storage - it is relatively easy for government
interventions to have counter-intertuitive
impacts
79OverviewTransaction costs function like a tax,
inhibiting input use
worsening of the input-output price ratio
caused by transaction costs
slopePit/Po
Qo (qty. of output)
slopePi/Po
A
Qi (qty. of input)
80- and driving people towards self-sufficiency
Quantity of a, all other goods
transaction costs reduce the farmer to a lower
indifference level.
slope-Pb-t/Pa
slope-Pb/Pa
Quantity of b goods
81- and we can measure welfare effects using economic
surplus, in partial equilibrium
Total marginal cost
Transaction costs
Farmers marginal costs (market supply curve)
Pd
P
Buyers willingness to pay (market demand curve)
Ps
Q
Q
Qty of output (b goods)
For simplicity, external costs are drawn
constant per unit of output in reality, there
may be variation.
82- and we can measure welfare effects using economic
surplus, in partial equilibrium
supply transaction costs
If transaction costs were eliminated,
consumers gain A producers gain B This is a
much bigger gain than just the Harberger
triangle, because the costs themselves are saved
Pd
supply
A
B
demand
Ps
Q
Q
but transaction costs are real, and cant be
wished away. We need to think carefully about
how they affect markets.
83we can specify supply and demand curves for two
(or more) regions
Northern Zimbabwe
Southern Zimbabwe
P(/lb)
P(/lb)
SMC
SMC
Pes
Pen
DWTP
DWTP
Q(tons)
Q(tons)
In the Northern region, the equilibrium price is
low
er than in the South.
84 and draw excess supply and demand functions
for transport between the regions
Transport between north south
Northern Zimbabwe
Southern Zimbabwe
P(/lb)
Pes
ESnorth
Pen
EDsouth
Q(tons)
Q(tons)
Q(tons)
85to find a national equilibrium price and
quantity transported north-south
Northern Zimbabwe
Southern Zimbabwe
P(/lb)
ESnorth
Pen
EDsouth
Q(tons)
Q(tons)
Q(tons)
Qt
Qt
Qt
all equal!
86But it costs something to do north-south
transport!
Northern Zimbabwe
Southern Zimbabwe
P(/lb)
ESnorth
ctransport
EDsouth
Q(tons)
Q(tons)
Q(tons)
Qt
Qt
Qt
87As transport costs rise, each region moves toward
autarky prices ( )
Northern Zimbabwe
Southern Zimbabwe
P(/lb)
larger ctransport
ESnorth
EDsouth
Q(tons)
Q(tons)
Q(tons)
Qt
Qt
Qt
88In equilibrium, price differences equal
transport costs
Northern Zimbabwe
Southern Zimbabwe
Psouth
ctransport
Pnorth
Q(tons)
Q(tons)
Qt
Qt
and we can generalize this to have many regions,
including import export locations.
89and the whole country may beexporting or
importing...
on a national S-D diagram
when exporting, the national price level is at
Pt, above Pe...
Pt
Pe
Ptsouth
less deficit here
more surplus here
Pesouth
Ptnorth
Penorth
Q(tons)
Q(tons)
Qt
Qt
and both regions prices are higher than they
would be without trade.
90From week 9
- Policy and political economy
91The development paradoxCountries tend to tax
agriculture when they are poor, and increasingly
subsidize it as they get richer.
Source Real GDP per capita is from the Penn
World Tables (http//pwt.econ.upenn.edu), and
percentage PSE estimates are from the USDA
Economics and Statistics System
(http//usda.mannlib.cornell.edu). Countries are
Argentina, Australia, Bangladesh, Brazil, Canada,
Chile, China, Colombia, Slovak Rep, France,
Egypt, Hungary, India, Jamaica, Japan, Kenya,
Mexico, Nigeria, New Zealand, S. Africa, Senegal,
Turkey, USA, Venezuela, Zambia, Zimbabwe.
92How might we understand, explain and perhaps
reform agricultural policy?
- In poorer countries,
- agriculture generally
- employs a large fraction of workers,
- consumes a large fraction of expenditure, and
- supplies a large fraction of exports (but often
net food imports) - while governments generally
- have few tax instruments, so rely on trade
tariffs for revenue-- taxing trade taxes
agriculture as an unintentional by-product - have few democratic institutions, so respond to
lobbying--farmers are poor and dispersed so
cannot counter-lobby - have falling land per farmer, often a rising real
cost of food--governments seeking stability may
try to keep food prices at past levels.
93Meanwhile,
- In richer countries
- agriculture generally
- accounts for a small fraction of expenditure and
trade and - employs a small number of workers on a fixed land
base - field crops are dominated by self-employed
family farmers, whose farm profits are
capitalized into the value of farmland, which
active farmers rent or buy from ex-farmers
their heirs - and farm lobbying groups generally
- can field a large number of geographically
dispersed, similarly motivated activists, who can
appeal to a common history of relative
deprivation but whose land makes them now
wealthy - also, each farmer can gain large benefits by
investing in politics, at little cost to each
non-farmer (who therefore doesnt counter-lobby),
with assurance that free-riding entrants will not
dissipate policy rents.
94Are we already in the best of all possible
worlds?
- If everyone is optimizing, observed policies
might maximize aggregate welfare. Three kinds of
models in which this occurs are - Benevolent dictator models
- (in which omnipotent leaders maximize their
dynastic wealth) - Median-voter models
- (in which entrepreneurial leaders seek policies
that appeal to 501 voters) - Tiebout-sorting models (from Tiebout 1956)
- (in which entrepreneurial leaders provide a set
of options, and people move to jurisdictions
where policies match their preferences) - ...but these approaches dont work very well
real governments dont do anything close their
predictions.
95Modern political economyExplanations with
(political) market failure
- More successful models use a principal-agent
approach, in which principals (the people) must
use agents (leaders) to acquire public goods. - With full information, costless transactions,
etc., the losers from inefficient policy could
always buy out the winners, leading to Pareto
optimality. - So modern models rely on transaction costs
- Rational ignorance (from Anthony Downs in a 1954
book) - Free-ridership (mainly from Mancur Olson in a
1971 book) - Rent-seeking (term coined by Anne Krueger in a
1974 article) - Time consistency (e.g. paper by McMillan and
Masters 2003)
96What about the prospects for reform in
industrialized countries?
In the U.S. and other rich countries, agriculture
is still dominated by family farms, but they are
either part-time or very large
Source Economic Research Service, U.S.
Department of Agriculture
97Prospects for reform in industrialized countries
Its really all about land values if subsidies
were withdrawn, land values would fall, and
landowners would scream.
Source Economic Research Service, U.S.
Department of Agriculture
98A few conclusions
- There are very strong political-economy reasons
why poorer countries tax agriculture, and richer
countries subsidize it - Moral outrage and exposure might not be enough to
change the balance of power efforts to induce
reform will probably have to change the
institutional mechanisms available to
governments - in rich countries, to support land values and
rural employment - in poor countries, to reduce stabilize food
prices for urban areas. - Rich-country farm subsidies may be egregiously
inefficient and inequitable, but they have little
direct effect on poor-country farmers for them
whats much more important is what happens within
their countries.
99From week 11
- Agriculture in economic growth and in
international trade
100Gollin, Parente and Rogerson
- Some key insights from this approach are
- when an activity is required for survival
- if productivity in that sector stays below some
threshold, it can impose a permanent poverty
trap - if/when productivity in that sector rises above
subsistence, it can allow growth out of poverty,
but only as fast as labor can move. - productivity growth in the subsistence sector,
when it can be achieved, is a particularly
pro-poor kind of intervention.
101Agriculture in the World Economy
- Both pro- and anti-globalization activists have
seen high rising rich-country farm subsidies as
a cause of low falling poor-country farm
income. - To what extent is this true?
102Reprise of earlier table on impacts of
rich-country reform on poor countries
103A few conclusions
- A small but perhaps-growing group of economists
see the possibility that the poorest regions may
be stuck in an agriculture-health poverty trap,
where - people have no choice but to farm transaction
costs are too high to attract enough foreign
investment and trade - farming is increasingly difficult demographic
transition initiated by mortality decline caused
a burst of population growth and decline in land
area available per farmer - agricultural productivity growth in food crops
is needed to free labor and capital for other
things, including perhaps some agricultural
exports - technological innovations are not automatic, they
come from collective decisions requiring
political leadership.
104From week 12
- RD and the future of agriculture
105RD for AgricultureFrom the Green Revolution to
Biotechnology
- Induced innovation in agriculture
- You can't always get what you want, but if you
try sometimes you might find you get what you
need. - Mick Jagger and Keith Richards
106Induced InnovationNew techniques are most
desirable if they help farmers use what is
increasingly abundant
Ag. output (tons/hectare)
Qty. of labor (days/hectare)
biochemical, labor-using innovations
input-using, yield-increasing innovations
mechanical, labor-saving innovations
input-saving (but yield-reducing) innovations
Qty. of traction (hp/hectare)
Qty. of fertilizer (tons/hectare)
107Productivity growth can change its pace and
direction over time, as in the U.S.
Farm Input Use in the U.S., 1910-1994 (index
numbers, 1948100)
Crop chemicals
Machinery
Land
Labor
Source W.E. Huffman and R.E. Evenson, 2001.
"Structural and productivity change in US
agriculture, 1950-82." Agricultural Economics 24
127-147. Data for 1910-1948 from loomis and
Barton 1961, and for 1948-1994 from U.S.
Presdient 1997, updated to 2000.
108The modern green revolutionKey characteristics
of the technology
- Genetic improvement
- First generation, general-purpose breakthroughs
- short stature, to concentrate nutrients in grain,
not stalk, and support more grain without falling
over (lodging) - photoperiod insensitivity, to give flexibility in
planting/harvest dates and accelerate maturation,
with more time for grain filling, and early
maturity for short rains or multicropping - Second generation improvements and local
adaptations - pest and disease resistance
- abiotic stress tolerance (moisture, heat,
salinity, pH, toxins) - product traits (grain quality, stover)
- Agronomic improvement
- moisture management
- irrigation but also water harvesting, control of
water runoff - soil fertility
- inorganic nutrients but also organic matter, soil
quality, erosion
109Most African farmers still use old seed types
new seeds are coming out now
Source Calculated from data in Evenson and
Gollin, 2003.
110RD funding for Africa has been low and stagnant
Source Calculated from IFPRI and FAOStat file
data
111Public research intensities are low in developing
countries
112Private research intensities in developing
countries are even lower
113And in conclusion, just one new slide
114The economics of food and agriculture offers many
puzzles, and much room for improvement!
Foreign aid and agriculture in the US and all
OECD (billions of US dollars, 2000)
Source Calculated from OECD, Geographical
Distribution of Financial Flows to Aid Recipients
2002, and Producer and Consumer Support Estimates
2002 (www.SourceOECD.org).