Economic Development in Asia

Chapter 4- Agriculture
 Objectives
• Agriculture & Economic Growth

• Decline of the Agriculture Sector

• Agriculture Transformation in Asia

• Productivity in Agriculture

• Agricultural Development in Monsoon Asia

• Lessons and Policy Issues in Asian Agriculture

 Agriculture & Economic
Growth
• Plays a key role in the process of economic
development.

• Rich source of factor inputs to feed the growing

labor force in the industrial sector and other modern
sectors.

• Major source of investment and capital formation.

• Provides foreign exchange for acquisition of foreign

technology.
 Agriculture & Economic
Growth
• Finally, agriculture provides a rich market for the
output of the modern urban sector.

• The transition from a primarily rural based economy

to an industrial economy requires a strong
agricultural sector.

• This is because a surplus from agriculture is needed

to fuel investment in industry.
 Decline of the Agriculture
Sector
• Experience of a broad range of
countries indicates that the relative
importance of the agricultural
sector to the economy diminishes
with growth over time.

• As income increases, share of

agricultural value-added in GDP
and as a source of unemployment
declines.
 Agricultural Transformation
in Asia
• The decline of the agricultural sector appeared to be
directly proportional to overall rate of economic
growth.

• Agriculture’s share of output declined gradually from

over 60% in the 1950s in most Asian countries to
less than 20% by the 1990s.

• Growth in agriculture was high in countries where

overall growth was high and vice versa.
 Agricultural Transformation
in Asia
• The tendency for agricultural sector output to fall
as a percent of total output was also the result of
the Engle curve effect.

As income increases, a smaller than

proportional amount of this increase in
income is spent on agricultural products.
 Agricultural Transformation
in Asia
• Rapid rises in productivity in agricultural sector
such as through Green Revolution contributed
further to declining terms of trade.
 Agricultural Transformation
in Asia
• The combination of low-income
elasticity of demand for
agricultural products and
sluggish prices exerted strong
pressure on resources to move
out of the sector.

• This facilitated and accelerated

the migration to urban areas
where rapidly growing
industrial establishments
required more workers.
 Productivity in Agriculture
• Labor productivity is usually higher in agricultural
sector than industry at the beginning of the
industrialization process.

• As industrialization moved
forward, industrial
productivity exceeded
agricultural productivity,
which still remained high
(Table 4.3).

• This provided a mutually reinforcing positive

impact on economic growth.
 Productivity in Agriculture
• In some countries, productivity came from
expansion of land/irrigation and in others from
improved yields using better crop varieties (Table
4.4).
 Productivity in Agriculture
• The experience in Asia was different from that
observed in other developing regions where
agricultural productivity often stagnated.

• Industrialization strategies in various Asian

countries had been financed in many cases by
internal savings generated primarily from
agriculture.

• One good example is Taiwan. In other cases, such as

Korea, overseas borrowing augmented these
savings from agriculture.
 Productivity in Agriculture
• Agricultural productivity in Asia exceed those
of Latin America and Africa (Figure 4.2).

• Growth in per capita

food production in
Latin America and
Near East fluctuated
within 10 per cent
range; whilst Africa
showed a steady
decline over the last
20 years.
 Productivity in Agriculture

• In contrast, the growth of per capita food production

in Asia shows a steady increase over time, increasing
by nearly 40 percent by the end of the period.

• The largest increments were achieved in the late 80s

and early 90s.

• Hence, its astounding agricultural productivity

presents a key link to the chain of developments that
led to Asia’s economic success.
 Agricultural Development in
Monsoon Asia
• Monsoon agriculture
requires extensive labor
input during planting and
harvesting.

• Most agriculture was rain

fed in the early part of the
20th century.

• Farms were small and

population densities high,
conditions that were ideal
for rice cultivation.
 Agricultural Development in
Monsoon Asia
• Traditional agriculture was quite efficient, given its
limitations.

• Irrigation and higher yielding varieties were the keys

to transforming traditional agriculture and raising
productivity.

• This transformation was required to lift savings and

to provide labor and investment for the growing
industrial sector.
Agricultural Development in
Monsoon Asia
• Adoption of more modern
technology was slowed
by the risk averse
behavior of small farmers.

• Several new
developments were key
components in the
transformation to higher
yielding and more
progressive agriculture.
 Agricultural Development in
Monsoon Asia
• These included adoption of higher yielding varieties,
application of fertilizers, herbicides and pesticides
and greater use of irrigation.
• Other developments didn’t help much.
• These included changes in farm size and in land
tenure.
 Agricultural Development in
Monsoon Asia
• Far reaching land reform was difficult, if not
impossible, and changes in tenancy arrangements
didn’t bring about any uniformly significant gains in
productivity.

• Macroeconomic policies were generally supportive

of agricultural development, and the sector was not
“squeezed” as it was in some other developing
region.

• Nevertheless there were still taxes on the sector

which were used to subsidize growth in other
sectors of the economy, particularly industry.
 Lessons and Policy Issues in
Asian Agriculture
• Subsidies to mechanization
should be removed.

• Once this is done,

mechanization should be left
to the market, since its
profitability and scope of
applicability will depend upon
local conditions.

• Higher yielding varieties may

have had an adverse affect on
income distribution.
 Lessons and Policy Issues in
Asian Agriculture

• Further development in genetic engineering are

necessary to sustain growth in yields.
• These could involve breeding crops that are
disease resistant, drought resistant, flood
resistant and need less fertilizer.
 Lessons and Policy Issues in
Asian Agriculture
• It would also involve greater transfer of technology from
industrial countries and development of new varieties in Asia.

• Improved farm extension is needed to ensure that new

developments in seeds, crop rotation and new varieties can be
spread to farmers efficiently and quickly.

• Greater emphasis on water conservation and improved

productivity.
Lessons and Policy Issues in
Asian Agriculture

• Genetically modified organisms (GMOs) are

becoming more important despite objections from
EU countries.

• Zero tillage an important new development

• Shift away from primary grains toward tree crops,
horticulture, fishing and secondary food crops
should be encouraged.
 Lessons and Policy Issues
• The demand for
protection of
agriculture varies
inversely with the
level of income and
the share of income
going to agriculture.

• Developing countries
must lobby more
effectively for the
lowering and
eventual removal of
these tariff barriers.
 Summary
• Importance of the agriculture sector to economic
growth.
• Decline of the agricultural sector over time.
• Agricultural transformation in Asia and its high
productivity levels.
• Lessons and policy implications learnt.