Agriculture/ Development Studies/ Economics

"The culmination of decades of research, TransformingAgrarian Economicsis

the definitive statement of a set of propositions of great importance to
development."David K. Leonard, University of California, Berkeley

TOMICH,
KILBY,

The world's 58 poorest countries share the characteristic of a labor force

overwhelmingly dependent on agriculture. Challenging the assumption
that mass poverty and chronic hunger are unsolvable problems, this book
systematically explores the multiple aspects of economic development in
these countries, which are home to 60 percent of the world's population.
The authors offer a broad-based development strategy to raise incomes
through agricultural productivity growth and expanded rural employment.They present rich new information on the rural informal sector and
on agriculture-industry interactions, and they analyze the impact of
macroeconomic and social policies on the rural economy. Policy instruments aimed at bringing about broad-based development are carefully
assessedfrom fiscal policy to development of new seeds and farm
implements.
The book includes detailed case studies of countries that have seized
or misseddevelopment opportunities. Comparison of the successful
economic transforrhations of Japan and the United States shows how key
ideas, which the authors call strategic notions, have enabled policymakers
to act with foresight. Analyses of strategic choices in China, the Soviet
Union, Taiwan, Mexico, Kenya, and Tanzania also show how development strategies that emerge from the real-world political economy reflect
a mix of individual interests and strategic notions.

JOHNSTON

TRANSFORMING AGRARIAN ECONOMIES

AND

OPPORTUNITIES SEIZED, OPPORTUNITIES MISSED

Thomas P. Tomich is Senior Natural Resource Economist for the

International Center for Research in Agroforestry, Indonesia. He has had
resident positions in Egypt and Indonesia and, during ten years with the
Harvard Institute for International Development, served as a policy analyst
and advisor in the Gambia, Indonesia, Madagascar, Malawi, and Tajikistan.
Peter Kilby is Professor of Economics at Wesleyan University. He has
experience in a dozen developmg countries in Asia and Africa, including
work on the Nigerian economy spanning thirty years.
Professor Emeritus at the Food Research Institute, Stanford University,
Bruce F. Johnston has worked on economic development issues in Asia,
Africa, and Latin America for over forty years.
Cover design and illustration by Joseph R. Gilmore.

Cornell Paperbacks
Cornell University Press
ISBN 0-8014-8245-3

9000
CORNELI-

9 780801 482458

THOMAS P.

PETER KILBY, AND BRUCE F. JOHNSTON

Cost of

by

0-5

slue,

5-15

15-25

Farm alto (acres)

S0Nfvet
S. Rhatta berry and Cline
Reprinted by permission,

Thble

'60, O

Johns Hopkins UniversityPress,

lationship between farm size and output indicates that in countries where
labor is relatively abundant, diseconomies typically outweigh economies of
farm size, The inverse relationship of farm size to output arises from factor
market imperfections and leads to systematic differences in inputs and outputs across farm units of different sizes. Together, these farm-size effects also
create a tendency for smaller operating units to adopt relatively labotsusing
and capital-saving technologies (Box 4-4).
TECHNOLOGICAL CHANGE IN ASIA AND SUB-SAHARAN AFRICA

History, politics, and culture are important factors in the distribution of

farm sizes and patterns of agricultural development. The size distribution
was often established in colonial times, along with institutionsto support
the status quo. It is hardly surprising,then, that there is economic and social inequality. In many countries, paternalism, bureaucratic practices, and
disparaging attitudes toward small-scale farmers are major obstacles to agricultural development.

x36 Front Structure to Strategy

Figure 9.2.

Index of China's total factor productivity in agricult

195287

140
130
120
110
100

90
80
70
1952

1957

1962

1967

1972

1977

1982

1987

Source: Lin 1990, Figure 1.0 1990 by The University of Chicago. All rights reserved. Reprinted by permission.
Note: Lin (1990) presents several estimates of changes in total factor productivity, but argues that Wen's
estimates on which this figure are based are probably the most accurate available. Furthermore, as Lin notes,
the broad patterns of change suggested by the various estimates are very similar.

mated 65 kg (in nutrient weight) per hectare in 1977 to 178 kg in 1984.

That (and some improvement in the balance of applications of nitrogen,
phosphate, and potassium) helped to increase crop yields and output (Stone
1986, p. 455; Lardy 1986, p. 331).
In fact, growth in production has slowed considerably since 1984. In
198589growth of agricultural output averaged 3-5 percent, compared to
more than 6.5 percent in all but one of the preceding six years; crop production fell in 1985 and 1988. This slowdown was due mainly to declines
in farm product prices and increases in prices of farm inputs (Sicular 1990).
(The fiscal burden of subsidies was reduced by cutting the prices paid to
farmers for commodities bought by the government.) Moreover, government
policies allowing private nonfarm enterprises, together with credit policies
that diverted funds from farming to nonfarming, encouraged an outflow of
labor and other resources from agriculture.
Growth of domestic fertilizer production also slowed in 1985 and 1986,
along with a sharp decline in fertilizer imports. And because of frequent policy changes (and pressure on fertilizer manufacturers to hold down prices
China and the Soviet Union

301

that was tighih than the pressure on their input and transport prices), fertilizer makersn, ve diversified into less-regulated products. Moreover, farmers are applyi less manure and weeding less "because the value of their
labor in off-farm and non-foodcrop farming activities is much higher than
it was a decade ago" (Stone 1989).
Nevertheless,China's experience since 1978 is strong evidence that incentives and decentralized decision making help to expand agricultural production and to increase total factor productivity. With rural communes came
a fall in total factor productivity, followed by stagnation until 1978 when it
rose rapidly (Figure9.2), which is not surprising.Members of communes
receive remuneration according to "work points" or something similar that
is only loosely based on their contribution to the group. Incentives to work
hard and exercise initiative are few, unlike a situation where rewards are
linked directly to performance.
Contradictions in Maoist Strategies

China's leaders were committed "to serve the rural poor," and they have
seen "their future and the future of the policies they believe in as being intimately tied to the prosperity of the countryside" (Perkins and Yusuf 1985,
p. 5). However, there was an equally strong commitment to an industrial
state supporting modern military forces. This led in the 1950s to a Stalinist
development strategy, with emphasis on heavy industry, such as steel and
machinery. And that continued to be the dominant strategy until Mao's death,
despite rhetoric about "agriculture as the foundation."
Unlike the Soviet Union, China was able to implement a self-reliant strategy for agriculture that expanded output by labor-using, capital-saving technologies and minimized the flow of scarce resources into agriculture. "The
choice of a self-reliant strategy was deliberate. The government budget directly controlled nearly a third of national product, and industrialization
proceeded rapidly throughout the three decades, but these resources were
directed mainly toward the machinery and steel sectors, not agriculture"
(Perkins and Yusuf 1985, p. 194).
China's version of an "industrialization first" strategy resulted in a unique
urban bias. After rising from 12.5 to 15-4 percent in 195257,the increase
in the urban share of population to 17-9percent in 195778was slight. This
was due to a virtual ban on migration from rural to urban areas. Since then,
controls have been relaxed.6However, the ability to enforce that ban is striking evidence of the government's capacity to implement policies.
6The large reported growth of the urban population from 24r million in 1983 to 382 million in 1985 (or 38 percent of the total) is, however, misleading. In 1984 the Chinese redefined
"urban," and a large, but unknown, part of the increase results from this reclassification (Perkins
1988, p. 639).

302

Choices and Consequences

share ( % )

34.4
42.4
100.0

23.2

16.9
50.5
100.0

5.6
62.1
100.0

32.3

27.4
7.9
64.7
100.0

18.3

2.3
79.4
100.0

169.8

92.6

42.1

50.3
100.0

23.2

26.7

32.6

259.3

24.8

71.7

361.4

151.7

26.1

238.0
63.8

19313 5

91.6

30.5

162.9
56.3

192125

100.0

31.6
3.6
64.7

212.5

32.2
3.3
64.5
100.0

185.0

100.0

100.0

100.0

57.0

10.4

32.6

378.5

100.0

7.4
52.0

40.6

46.4
5.5
48.1

485.8

13.4

801.6
60.6

196165

297.8

22.0

513.3
58.0

19505 5

32.3
45.1

22.6

301.6

21.1

422.5
71.4

193640

100.0

35.6
15.6
48.8

502.4

100.0

49.3

8.2

42.5

646.8

13.8

61.9

1,044.9

196669

Source: Data from Lee 1971; and T. H. Lee, "Strategies for Transferring Agricultural Surplus under Different Agricultural Situations in Taiwan" (paper prepared for the
Japan Economic Research Center Conference on Agriculture and Economic Development, Tokyo and Hakone, September 1971). The five-year periods omitted here for
brevity are included in the original sources.

Total

Total farm purchases

Percentage breakdown
Current inputs
Fixed capital
Consumer goods

Sales to processors
Total

Total farm cash sales

Percentage breakdown
Sales to nonfarm
households
Sales to foreign
countries

share ( 0/0)

Resource transfer

Marketed

Agricultural output

191115

Table 10.3. Intersectoral resource flows in Taiwan, 191169(millions of Taiwan dollars at 193537prices)