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437

9.1 The Imperative of Agricultural Progress and Rural Development

If the migration of people with and without school certificates to the cities of Africa, Asia, and Latin America is proceeding at historically unprecedented rates, a large part of the explanation can be found in the economic stagnation of outlying rural areas. Despite real progress, nearly 2 billion people in the developing world grind out a meager and often inadequate existence in agricultural pursuits. Over 3.1 billion people lived in rural areas in developing countries in 2013, about a quarter of them in extreme poverty . And despite the extraordinary urbanization taking place throughout the world (examined in Chapter 7), people living in the countryside make up more than 60% of the population in both low- and lower middle–income countries on average. Latin America is highly urbanized, having reached the same level of urbanization as the high-income Organization for Eco-nomic Cooperation and Development (OECD) countries by 2011. But in sub-Saharan Africa, rural dwellers constitute 64% of the total population; in South Asia, some 69% of the population live in rural areas as of 2011, with the result that more than half the workforce is concentrated in agriculture. Countries whose population is more than 80% rural include Ethiopia, Nepal, Niger, Papua New Guinea, Rwanda, South Sudan, Sri Lanka, and Uganda. India remains more than two-thirds rural.1

9

It is in the agricultural sector that the battle for long-term economic development will be won or lost.

—Gunnar Myrdal, Nobel laureate in economics Recent developments in the land, water, and energy sectors have been wake-up calls for global food security.

—International Food Policy Research Institute, 2012Many development policies continue to wrongly assume that farmers are men.

—World Bank, World Development Report, 2008Africa is the only region where overall food security and livelihoods are d eteriorating. We will reverse this trend by working to create an environmentally sustainable,

uniquely African Green Revolution. When our poorest farmers finally prosper, all of Africa will benefit.

—Kofi Annan, former secretary general of the United Nations, Nobel laureate for peace, and

first chairman of the Alliance for a Green Revolution in Africa

Agricultural Transformation

and Rural Development

438PART Two Problems and Policies: Domestic

Of greater importance than sheer numbers is the fact that well over

two-thirds of the world’s poorest people are also located in rural areas and

engaged primarily in subsistence agriculture. Their basic concern is survival.

Many hundreds of millions of people have been bypassed by whatever eco-

nomic progress their nations have attained. The United Nations Food and

Agriculture Organization estimated that in 2012, about 870 million people did

not have enough food to meet their basic nutritional needs.2 In the daily strug-

gle to subsist, behavior of poor farmers in developing countries often seemed

irrational to many observers who until recently had little comprehension of

the precarious nature of subsistence living and the importance of avoiding

risks. If development is to take place and become self-sustaining, it will have

to include the rural areas, in general, and the agricultural sector, in particu-

lar. The core problems of widespread poverty, growing inequality, and rapid

population growth all originate in the stagnation and often retrogression of

economic life in rural areas, particularly in Africa.

Traditionally in economic development, agriculture has been assumed to

play a passive and supportive role. Its primary purpose is to provide suffi-

cient low-priced food and manpower to the expanding industrial economy,

which is thought to be the dynamic “leading sector” in any overall strategy of

economic development. Lewis’s famous two-sector model, discussed in Chap-

ter 3, is an example of a theory of development that places heavy emphasis

on rapid industrial growth, with an agricultural sector fueling this industrial

expansion by means of its cheap food and surplus labor. Nobel laureate Simon

Kuznets introduced an early schema, noting that agriculture made four “con-

tributions to economic development”: the product contribution of inputs for

industry such as textiles and food processing, the foreign-exchange contribu-

tion of using agricultural export revenues to import capital equipment, the

market contribution of rising rural incomes that create more demand for con-

sumer products, and the factor market contribution, divided between the labor

contribution (Lewis’s manpower)—workers not needed on farms after agri-

cultural productivity was raised could then work in industry—and the capital

contribution (some farm profits could be reinvested in industry as agriculture

became a steadily smaller fraction of national income). The capital contribu-

tion was misapplied as a “squeezing of the peasantry,” but it meant investing

first in agriculture and later reaping profits that would be partially reinvested

in industry. As can be seen from this description, however, the framework

implicitly—and ironically—still treats industrialization rather than rural mod-

ernization as the core development goal.3

Today, most development economists share the consensus that far from

playing a passive, supporting role in the process of economic development,

the agricultural sector, in particular, and the rural economy, in general, must

play an indispensable part in any overall strategy of economic progress, espe-

cially for the low-income developing countries.

An agriculture- and employment-based strategy of economic development

requires three basic complementary elements: (1) accelerated output growth

through technological, institutional, and price incentive changes designed

to raise the productivity of small farmers; (2) rising domestic demand for

agricultural output derived from an employment-oriented, urban develop-

ment strategy; and (3) diversified, nonagricultural, labor-intensive rural

d evelopment activities that directly and indirectly support and ar

e supported

439 CHAPTER 9Agricultural Transformation and Rural Development

by the f arming community.4 To a large extent, therefore, agricultural and rural

development has come to be regarded by many economists as the sine qua

non of national development. Without such integrated rural development, in most cases, industrial growth either would be stultified or, if it succeeded, would create severe internal imbalances in the economy.

Seven main questions, therefore, need to be asked about agricultural and rural development as it relates to overall national development:

1. How can total agricultural output and productivity per capita be substan-

tially increased in a manner that will directly benefit the average small farmer and the landless rural dweller while providing a sufficient food surplus to promote food security and support a growing urban, industrial sector?

2. What is the process by which traditional low-productivity (peasant) farms

are transformed into high-productivity commercial enterprises?

3. When traditional family farmers and traditional (peasant) cultivators

resist change, is their behavior stubborn and irrational, or are they acting rationally within the context of their particular economic environment?

4. What are the effects of the high risks faced by farmers in low-income

countries, how do farm families cope with these risks, and what policies are appropriate to lessen risk?

5. Are economic and price incentives sufficient to elicit output increases

among traditional (peasant) agriculturalists, or are institutional and struc-tural changes in rural farming systems also required?

6. Is raising agricultural productivity sufficient to improve rural life, or must

there be concomitant off-farm employment creation along with improve-ments in educational, medical, and other social services? In other words, what do we mean by rural development, and how can it be achieved?

7. How can countries most effectively address problems of national food

s ecurity?

In this chapter, after a look at broad trends, we will examine the basic char-acteristics of agrarian systems in Latin America, Asia, and Africa. Although there is considerable diversity among developing nations, as well as within developing countries, each region tends to have a number of characteristics in common. First, these regions typically reflect the agricultural patterns of a griculture-based economies (in Africa), agriculturally transforming econo-mies (in Asia), and urbanized economies (in Latin America). Relatedly, agri-culture in these regions often typifies the stages of subsistence, mixed, and commercial farming, with important regional exceptions and varying suc-cess at inclusion of the poor. With successful development, countries tend to move toward commercialized agriculture, though with different trajectories and differing economic, social, and technical problems to solve along the way. Regions that have high concentrations of poverty also often reflect patterns of traditional agriculture (in Africa), high population density and subdivided smallholdings (in Asia), and the sharp inequalities of very large and very small farms (in Latin America). We will identify the various challenges facing Integrated rural development The broad spectrum of

rural development activi-ties, including small-farmer agricultural progress, the provision of physical and social infrastructure, the development of rural nonfarm industries, and the capacity of the rural sector to sustain and accelerate the pace of these improvements over time.

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PART Two Problems and Policies: Domestic

each group of countries and look at countries that are typical of their region and some countries and districts that deviate from the pattern.

Over two-thirds of the world’s extreme poor are involved in agricultural activities. We will therefore examine the economics of traditional (or peasant) subsistence agriculture and discuss the stages of transition from subsistence to commercial farming in developing nations. Our focus is not only the eco-nomic factors but also on the social, institutional, and structural requirements of small-farm modernization. We will then explore the meaning of integrated rural development and review alternative policies designed to raise levels of liv-ing in rural areas. The chapter concludes with a case study of problems of agricultural extension for women farmers in Africa.

9.2 Agricultural Growth: Past Progress and Current Challenges

Trends in Agricultural Productivity

The ability of agricultural production to keep pace with world population growth has been impressive, defying some neo-Malthusian predictions that global food shortages would have emerged by now. And it has actually been output gains in the developing world that have led the way. According to World Bank estimates, the developing world experienced faster growth in the value of agricultural output (2.6% per year) than the developed world (0.9% per year) during the period 1980–2004. Correspondingly, developing coun-tries’ share of global agricultural GDP rose from 56% to 65% in this period, far higher than their 21% share of world nonagricultural GDP . Since 2005, the growth gap has widened further. And research by the International Food Pol-icy Research Institute points up that a wide range of successful programs have reduced hunger while raising agricultural productivity over the last several decades, including Green Revolution successes in Asia; containment of wheat rusts; improved maize and pest-resistant cassavas in sub-Saharan Africa; shal-low tubewells for rice and homestead food production in Bangladesh; hybrid rice and mung bean improvement in East Asia; pearl millet and sorghum and smallholder dairy marketing in India; improved tilapia in the Philippines; suc-cessful land tenure reform in China and Vietnam; cotton reforms in Burkina Faso; and improvements of markets in Kenya.5

The degree to which general agricultural output grew significantly faster in developing countries in the 40-year period from 1970 to 2010 is reflected in Table 9.1. Output also grew in OECD regions; the sole exception was the poor performance in the transition countries. But growth in the value of output has not kept pace with population growth in Africa.

As Figure 9.1 shows, low-income countries tend to have the highest share of the labor force in agriculture, sometimes as much as 80 to 90%. The share of agriculture in GDP is lower but can represent as much as half of the value of output. These shares both tend to fall as GDP per capita rises: This is one of the broad patterns of economic development (see Chapter 3). But attention to the time paths of the share of agriculture in specific countries reveals a great deal of variation, which is also informative. In particular, sometimes the share of labor in agriculture declines greatly even when GDP per capita does not

Green Revolution The boost in grain production associated with the scientific discovery of new hybrid seed varieties of wheat, rice, and corn that have resulted in high farm yields in many developing countries.

441 CHAPTER 9Agricultural Transformation and Rural Development Array

increase much, if at all; examples are seen in the time paths of Nigeria and

Brazil, as traced out in Figure 9.1. This finding parallels the observation in the

Chapter 7, that urbanization is proceeding in many countries even when per

capita income is falling or not rising much. Problems in the agricultural sec-

tor can suppress incomes, encouraging more migration to the urban informal

sector. We will review the most important problems of developing-country

agriculture in this chapter. Figure 9.1 also illustrates the time path of China,

in which growth has been extremely rapid but the fall of the share of labor in

agriculture has been unusually slow due in significant part to restrictions on

rural-urban migration (though migration out of agriculture has greatly accel-

erated in the ensuing decade through 2013).

In marked contrast to the historical experience of advanced countries’ agri-

cultural output in their early stages of growth, which always contributed at

least as much to total output as the share of the labor force engaged in these

activities, the fact that contemporary agricultural employment in developing

countries is much higher than agricultural output reflects the relatively low lev-

els of labor productivity compared with those in manufacturing and commerce.

Agricultural production continues to rise around the world, broadly keep-

ing pace with the rising population. But progress has been very uneven, as

seen in Figure 9.2. In Asian developing countries, cereal yields per hectare

in 2005 were nearly triple their 1960 levels. Production in Latin America also

posted strong gains. Hunger in China fell. Agriculture in South Asia performed

well, although hunger is thought to have increased in India in recent years.

And in sub-Saharan Africa, yields increased by only about one-third. One of

the causes is that in many areas of Africa, the population has reached a size

where traditional slash-and-burn agricultural practices are no longer feasible

without reusing land after too little rest, resulting in significant deterioration of

soil nutrients. But subsistence farmers cannot purchase improved seeds, fertili-

zers, and other essentials of modern agriculture; the result can be a poverty

trap in which farmers must work harder and harder just to stay in place.

442PART Two Problems and Policies: Domestic

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443 CHAPTER 9Agricultural Transformation and Rural Development

Recurrent famine, regional famine, and catastrophic food shortages have

repeatedly plagued many of the least developed countries, particularly in

Africa. The 2011 drought and famine in the Horn of Africa, which affected over

13 million people, brought renewed attention to the problem (see Box 9.1). Of

Africa’s 750 million people, more than 270 million suffer from some form of

malnutrition associated with inadequate food supplies. The severe famine of

1973–1974 took the lives of hundreds of thousands and left many more with

permanent damage from malnutrition across the continent in the Sahelian belt

that stretches below the Sahara from Cape Verde, off the coast of Senegal in the

west, all the way to Ethiopia in the east. Four times in the 1980s and 1990s, at

least 22 African nations faced severe famine. In the 2000s, famine again seri-

ously affected African countries as widely separated as Mauritania in the north-

west, Ethiopia and Eritrea in the east, and Angola, Zambia, Zimbabwe, Malawi,

and Mozambique across the south.6 The recent famine in the Horn of Africa is

examined in Box 9.1.

Calls to mount a new Green Revolution in Africa like the successful one in

Asia are now starting to get the hearing they deserve, with public, private, and

nonprofit sector actors getting involved—including major support from the

Alliance for a Green Revolution in Africa (AGRA), chaired by former UN sec-

retary general Kofi Annan. Technical advances are clearly needed, and institu-

tional and social transformation on the ground will also be needed to achieve

the goals of rural development. The African Union’s peer-review NEPAD

initiative developed the Comprehensive Africa Agricultural Development

Program to emphasize investments and regional cooperation in agriculture-

led growth as a main strategy to achieve the first Millennium Development

Goal of halving hunger and poverty. It targets the allocation of 10% of national

budgets to agriculture and a 6% rate of growth in the agriculture sector at the

national level.7

One early success is in work at the Africa Rice Center in Benin to develop

varieties of New Rice for Africa (NERICA). These have so far proven beneficial

in Benin, Uganda, and the Gambia, with apparently greater impact on women

farmers than men farmers. It is not easy to replicate successes across Africa,

however; for example, NERICA varieties have not helped in Guinea and C?te

d’Ivoire. And food production will not automatically solve the problems of

hunger among people living in poverty.

The food price spike of 2007–2008 and an additional spike in 2011 high-

lighted the continuing vulnerabilities. During the food price crisis, progress in

reducing hunger ground to a halt and showed little improvement in the ensuing

years. Some of the causes were temporary factors. But expert predictions are

for high food prices in the longer term. Throughout the twentieth century, food

prices fell at an average rate of 1% per year; but so far in the twenty-first cen-

tury, food prices have risen on average. Figure 9.3 shows price trends for several

key agricultural commodities; prices have generally returned to levels not seen

since the late 1970s.8

As Nora Lustig has summarized, some of the causes of the 2007–2008

food price spike also reflect longer-term forces that will lead to high future

food prices, including diversion of food to biofuels production, increase in the

demand for food (particularly meat, which uses much more land than grain

445 CHAPTER 9Agricultural Transformation and Rural Development

446PART Two Problems and Policies: Domestic

production) due to higher incomes in China and elsewhere, the slowdown in

productivity growth of agricultural commodities, higher energy prices affect-

ing agricultural input costs, running out of new land to be brought into farm-

ing, and the negative impact of climate change on developing-country food

production. These are exacerbated by a number of unfavorable policies, includ-

ing various forms of interference with food prices.9

Furthermore, there is not a large global market for food in relation to total

demand. Most countries strive for food self-sufficiency, largely for national

security reasons. Embargoes of food exports by such countries as Egypt,

Vietnam, and Russia reflect this reluctance. In the late 2040s, the world will

find itself having to manage to feed over 9 billion people. While highlighting

impressive successes, we must also keep in mind looming challenges.

Market Failures and the Need for Government Policy

A major reason for the relatively poor performance of agriculture in low-

income regions has been the neglect of this sector in the development priorities

of their governments, which the initiatives just described are intended to over-

come. This neglect of agriculture and the accompanying bias toward invest-

ment in the urban industrial economy can in turn be traced historically to the

misplaced emphasis on rapid industrialization via import substitution and

exchange rate overvaluation (see Chapter 12) that permeated development

thinking and strategy during the postwar decades.10

447 CHAPTER 9Agricultural Transformation and Rural Development

If agricultural development is to receive a renewed emphasis, what is the

proper role for government? In fact, one of the most important challenges for

agriculture in development is to get the role of government right. A major

theme of development agencies in the 1980s was to reduce government inter-

vention in agriculture. Indeed, many of the early interventions did more harm

than good; an extreme example is government requirements for farmers to sell

at a low price to state marketing boards, an attempt to keep urban food prices

low. Production subsidies, now spreading like a contagion from high-income

to middle-income countries, are costly and inefficient.

Agriculture is generally thought of as a perfectly competitive activity, but

this does not mean that there are no market failures and no role for govern-

ment. In fact, market failures in the sector are quite common and include

environmental externalities, the public good character of agricultural research

and development and extension services, economies of scale in marketing,

information asymmetries in product quality, missing markets, and monopoly

power in input supply, in addition to the more general government roles of

providing institutions and infrastructure. Despite many failures, sometimes

government has been relatively effective in these roles, as in Asia during its

Green Revolution.11

But government also has a role in agriculture simply because of its neces-

sary role in poverty alleviation—and a large majority of the world’s poor are

still farmers. Poverty itself prevents farmers from taking advantage of opportu-

nities that could help pull them out of poverty. Lacking collateral, they cannot

get credit. Lacking credit, they may have to take their children out of school to

work, transmitting poverty across generations. Lacking health and nutrition,

they may be unable to work well enough to afford better health and nutrition.

With a lack of information and missing markets, they cannot get insurance.

Lacking insurance, they cannot take what might seem favorable risks for fear

of falling below subsistence. Without middlemen, they cannot specialize (and

without specialization, middlemen lack incentives to enter). Being socially

excluded because of ethnicity, caste, language, or gender, they are denied

opportunities, which keep them excluded. These poverty traps are often all but

impossible to escape without assistance. In all of these areas, NGOs can and do

step in to help (Chapter 11), but government is needed to at least play a facili-

tating role and to create the needed supporting environment.12

Policies to improve efficiency and alleviate poverty are closely related.

Many market failures, such as missing markets and capital market failures,

sharply limit the ability of poor farmers to take advantage of opportuni-

ties of globalization when governments liberalize trade, for example. If these

problems are not addressed prior to deregulation or making other structural

changes, the poor can remain excluded and even end up worse off. A key role

for government, then, is to ensure that growth in agriculture is shared by the

poor. In some countries, impressive agricultural growth has occurred with-

out the poor receiving proportional benefits. Examples include Brazil, with

its extremely unequal land distribution, and Pakistan, with its social injustices

and inequality of access to key resources such as irrigation. But by including

the poor, the human and natural resources of a developing nation are more

fully employed, and that can result in an increased rate of growth as well as

poverty reduction.13

448PART Two Problems and Policies: Domestic

9.3 The Structure of Agrarian Systems in the

Developing World

Three Systems of Agriculture

A first step toward understanding what is needed for further agricultural and

rural development progress is a clear perspective of the nature of agricultural

systems in diverse developing regions and, in particular, of the economic

aspects of the transition from subsistence to commercial agriculture.

One helpful way to categorize world agriculture, proposed by the agricul-

tural development economist Alain de Janvry and his colleagues in the World

Bank’s 2008 World Development Report, is to see that alongside advanced agri-

cultural systems in developed countries, three quite different situations are

found among developing countries.

First, in what the report terms agriculture-based countries, agriculture is still

a major source of economic growth—although mainly because agriculture

makes up such a large share of GDP. The World Bank estimates that agriculture

accounts for some 32% of GDP growth on average in these countries, in which

417 million people live. More than two-thirds of the poor of these countries live

in rural areas. Some 82% of the rural population of sub-Saharan Africa lives in

these countries. It also includes a few countries outside the region, such as Laos.

And a few African countries, such as Senegal, are undergoing transformation.

Second, most of the world’s rural people—some 2.2 billion—live in what

the report categorizes as transforming countries, in which the share of the

poor who are rural is very high (almost 80% on average) but agriculture now

contributes only a small share to GDP growth (7% on average). Most of the

population of South and East Asia, North Africa, and the Middle East lives in

these countries, along with some outliers such as Guatemala.

Third, in what the report calls urbanized countries, rural-urban migration has

reached the point at which nearly half, or more, of the poor are found in the cit-

ies, and agriculture tends to contribute even less to output growth. The urban-

ized countries are largely found in Latin America and the Caribbean, along

with developing eastern Europe and Central Asia, and contain about 255 mil-

lion rural dwellers.

In many cases, the position of countries within these groups is not stagnant.

Many countries that were in the agriculture-based category moved to the trans-

forming category in recent decades, most prominently India and China.

Figure 9.4 shows some of the country positions in each group, along with

the movement over time for four major countries over an approximately three-

decade period: China, India, Indonesia, and Brazil. For example, Brazil has

moved from being a borderline transforming country to a solidly urbanized

one according to the World Bank classification.

Agricultural productivity varies dramatically across countries. Table 9.2

shows variations in land productivity (measured as kilograms of grain har-

vested per hectare of agricultural land) between 3 developed countries (Canada,

Japan, and the United States) and 12 developing countries, along with the

averages for low-, middle-, and high-income countries. Despite the far smaller

number of farmworkers per hectare in the United States, its grain yield per

hectare was about 2.4 times that of India and almost 9 times that of the DRC

449

CHAPTER 9 Agricultural Transformation and Rural Development

(Congo). The value added per worker in U.S. agriculture was over 75 times that of India and over 177 times that of Congo.

It is also important to note that regional disparities can be quite large within countries. India has regions that fall within each of the three classifications, from modernized Punjab to semifeudal Bihar. Even upper-middle-income, urbanized Mexico has regions in the south with substantial poverty and high dependence on agriculture. Moreover, within regions, large and small, rich and poor often exist side by side—though large does not necessarily mean efficient. Let us look at agricultural issues facing countries in Latin America, Asia, and sub-Saharan Africa in more detail.

Traditional and Peasant Agriculture in Latin America, Asia, and Africa

In many developing countries, various historical circumstances have led to a concentration of large areas of land in the hands of a small class of powerful landowners. This is especially true in Latin America and parts of the Asian subcontinent. In Africa, both historical circumstances and the availability of relatively more unused land have resulted in a different pattern and structure of agricultural activity.

Although the day-to-day struggle for survival permeates the lives and attitudes of impoverished peasants in both Latin America and Asia (and also

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450

PART Two Problems and Policies: Domestic

Africa, although the rural structure and institutions are considerably different), the nature of their agrarian systems differs markedly. In Latin America, in a number of poorer and more backward areas, the peasants’ plight is rooted in the latifundio–minifundio system (to be explained shortly). In Asia, it lies primar-ily in fragmented and heavily congested dwarf parcels of land. The average farm size in Latin America is far larger than in Asia; the countries included in Table 9.3 are typical. The average farm size for Latin American countries such as Ecuador, Chile, Panama, and Brazil are several times larger than farm size in Asian countries such as Bangladesh, Pakistan, Thailand, and India. But the variance of farm size is much higher in Latin America, with huge farmlands controlled by the largest farms in Latin America. As the table reveals, patterns are anything but uniform, with farms in some countries splitting into smaller sizes and in other countries consolidating to larger sizes, and some experienc-ing increasing and others showing decreasing inequality over time.

Just as we can draw income Lorenz curves from data on the distribution of income (see Figure 5.1), we can draw land Lorenz curves from data on the distribution of farmholds among farmers. In this case, the x -axis reports the proportion of total holdings, and the y -axis reports the proportion of total

Agrarian system The pat-tern of land distribution,

ownership, and management, and also the social and institu-tional structure of the agrarian economy.

451 CHAPTER 9Agricultural Transformation and Rural Development Array

area. A land Gini may be calculated in a manner analogous to that of the

income Gini: It is the ratio of the area between the land Lorenz curve and the

45-degree line, and the whole triangle. Table 9.3 presents land Gini coefficients

and their change over time for representative developing countries.

One of the broadest trends is for farm sizes to become smaller over time

in Asia as land is subdivided, and this trend is seen increasingly also in

Africa.

Agrarian Patterns in Latin America: Progress and Remaining

Poverty Challenges

In Latin America, as in Asia and Africa, agrarian structures are not only part

of the production system but also a basic feature of the entire economic, social,

and political organization of rural life. The agrarian structure that has existed

in Latin America since colonial times and is still widespread in a substantial

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PART Two Problems and Policies: Domestic

part of the region is a pattern of agricultural dualism known as latifundio- minifundio .14 Basically, latifundios are very large landholdings. They are usu-ally defined as farms large enough to provide employment for more than 12 people, though some employ thousands. In contrast, minifundios are the smallest farms. They are defined as farms too small to provide employment for a single family (two workers) with the typical incomes, markets, and levels of technology and capital prevailing in each country or region.

Using Gini coefficients to measure the degree of land concentration, as seen in Table 9.3, researchers report that the coefficient for Brazil is 0.77, for Panama is 0.75, and for Ecuador is 0.71. Although estimates vary, changes in land inequality are limited in the case of Latin America (for example, see the data for Brazil and Ecuador in Table 9.3). Other countries are even more unequal; the Gini for Paraguay has been estimated to be an astoundingly unequal 0.94, and very high inequality has been estimated for Colombia and Uruguay, among others.15 These are the highest regional Gini coefficients in the world, and they dramatically reflect the degree of land ownership inequal-ity (and thus, in part, income inequality) throughout Latin America.

But latifundios and minifundios do not constitute the entirety of Latin Amer-ican agricultural holdings. A considerable amount of production occurs on family farms and medium-size farms . The former provide work for two to four people (recall that the minifundio can provide work for fewer than two people), and the latter employ 4 to 12 workers (just below the latifundio ). In Venezuela, Brazil, and Uruguay, these intermediate farm organizations account for almost 50% of total agricultural output and employ similar proportions of agricultural labor. These farms use a more efficient balance between labor and land, and studies show that they have a much higher total factor productivity than either latifundios or minifundios, as the law of diminishing returns would suggest. Indeed, evidence from a wide range of developing countries dem-onstrates that smaller farms are more efficient (lower-cost) producers of most agricultural commodities.16

A major explanation for the relative economic inefficiency of farming the fertile land on the latifundios is simply that the wealthy landowners often value these holdings not for their potential contributions to national agricultural out-put but rather for the considerable power and prestige that they bring. Much of the land is left idle or farmed less intensively than on smaller farms. Also, latifundio transaction costs , especially the cost of supervising hired labor, are much higher than the low effective cost of using family labor on family farms or minifundios . It follows that raising agricultural production and improving the efficiency of Latin American agrarian systems in traditional areas will require much more than direct economic policies that lead to the provision of better seeds, more fertilizer, less distorted factor prices, higher output prices, and improved marketing facilities.17 It will also require a reorganization of rural social and institutional structures to provide Latin American peasants, particularly indigenous people who find it more challenging to migrate, a real opportunity to lift themselves out of their present state of economic subsis-tence and social subservience.18

Despite the fact that many minifundio owners remain in poverty, especially among indigenous and mixed-race populations, and many latifundios continue to operate well below their productivity potential, a more dynamic sector,

Latifundio A very large landholding found particu-larly in the Latin American agrarian system, capable of providing employment for more than 12 people, owned by a small number of landlords, and comprising a disproportionate share of total agricultural land.

Minifundio A landholding found particularly in the Latin American agrarian system considered too small to pro-vide adequate employment for a single family.

Family farm A farm plot owned and operated by a single household.

Medium-size farm A farm employing up to 12 workers.

Transaction costs Costs of doing business related to gathering information, monitoring, establishing reli-able suppliers, formulating contracts, obtaining credit, and so on.

453 CHAPTER 9Agricultural Transformation and Rural Development

including some larger farms, has emerged. Efficient family and medium-size

farms are found throughout the region.

At an aggregate level, the agricultural sector in Latin America appears to

be doing fairly well. Chile has led the way in “nontraditional exports,” notably

fresh fruits for the northern hemisphere winter markets and also aquaculture,

vegetables, and wines; performance in Chile has benefited from an active and

relatively efficient agricultural extension system that has included efforts to

promote new exports. Diversification has reduced variance in export earnings.

Productivity growth in cereals has been quite solid. Sugarcane-based biofuels

and soybeans have played important roles in agricultural growth in Brazil.

And in traditional exports, particularly coffee, Latin America has led the way

in taking advantage of niche opportunities for higher-value-added activities

such as organic and Fair Trade markets.19

Some Latin American countries, such as Guatemala and Honduras, are still

in the mixed transition phase, and in such countries, the latifundio-minifundio

pattern tends to remain particularly dominant. But much of this pattern still

prevails in many other areas. As noted in Chapter 2, the extreme rural inequal-

ities in Latin America typically stem from the Spanish and Portuguese colonial

period, in which indigenous peoples were exploited in what often amounted

to slavery (see Box 2.3 on continuing effects of the mita system in Peru) and

African slaves were forcibly brought to the region. Overcoming this legacy has

been a long and painful process, with much remaining to be achieved. Social

discrimination continues, and improved access for the poor to agricultural

land in countries such as Colombia is still in all too many cases suppressed.20

Areas with less favorable agricultural conditions, often with a concentra-

tion of minority populations, such as northeast Brazil, the Andean region, and

parts of Mexico and Central America, tend to have persistently high poverty

levels. Extreme rural inequality inhibits progress in these areas, both because

of reduced access by the poor to credit and other inputs and because elites

effectively continue to block political participation by the poor, who often

receive low levels of government services. Moreover, rural-to-urban migration

has been disproportionately among more educated people, and the result is

that rural populations are becoming older, more female, and more indigenous.

These are factors in poverty rates that remain high for middle-income coun-

tries and will require sustained action by government and civil society.21

Transforming Economies: Problems of Fragmentation and

Subdivision of Peasant Land in Asia

If the major agrarian problem of Latin America, at least in traditional areas,

can be identified as too much land under the control of too few people, the

basic problem in Asia is one of too many people crowded onto too little land.

For example, the average farm size is just 3.4 hectares in Thailand, 3.1 hectares

in Pakistan, 1.4 hectares in India, and 0.6 hectares in Bangladesh; in each of

these cases, farm sizes have been getting even smaller over time (see Table 9.3).

The land is distributed more equally in Asia than in Latin America but still

with substantial levels of inequality. As seen in Table 9.3, the estimated Gini

coefficients for land distribution in Asia range from 0.448 in India, to 0.483 in

B angladesh and 0.467 in Thailand, to 0.540 in Pakistan.

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PART Two Problems and Policies: Domestic

Throughout much of the twentieth century, rural conditions in Asia typi-cally deteriorated. Nobel laureate Gunnar Myrdal identified three major inter-related forces that molded the traditional pattern of land ownership into its present fragmented condition: (1) the intervention of European rule, (2) the progressive introduction of monetized transactions and the rise in power of the moneylender, and (3) the rapid growth of Asian populations.22

The traditional Asian agrarian structure before European colonization was organized around the village. Local chiefs and peasant families each pro-vided goods and services—produce and labor from the peasants to the chief in return for protection, rights to use community land, and the provision of pub-lic services. Decisions on the allocation, disposition, and use of the village’s most valuable resource, land, belonged to the tribe or community, either as a body or through its chief. Land could be redistributed among village members as a result of either population increase or natural calamities such as drought, flood, famine, war, or disease. Within the community, families had a basic right to cultivate land for their own use, and they could be evicted from their land only after a decision was made by the whole village.

The arrival of the Europeans (mainly the British, French, and Dutch) led to major changes in the traditional agrarian structure, some of which had already begun. As Myrdal points out, “Colonial rule acted as an important catalyst to change, both directly through its effects on property rights and indirectly through its effects on the pace of monetization of the indigenous economy and on the growth of population.”23 In the area of property rights, European land tenure systems of private property ownership were both encouraged and rein-forced by law. One of the major social consequences of the imposition of these systems was, as Myrdal explains, the

breakdown of much of the earlier cohesion of village life with its often elaborate, though informal, structure of rights and obligations. The landlord was given un-restricted rights to dispose of the land and to raise the tribute from its custom-ary level to whatever amount he was able to extract. He was usually relieved of the obligation to supply security and public amenities because these functions were taken over by the government. Thus his status was transformed from that of a tribute receiver with responsibilities to the community to that of an absolute owner unencumbered by obligations toward the peasants and the public, other than the payment of land taxes.24

Contemporary landlords in India and Pakistan are able to avoid much of the taxation on income derived from their ownership of land. There are varia-tions, but landlords in South Asia are often absentee owners who live in the town and turn over the working of the land to sharecroppers and other t enant farmers . Sharecropping is widespread in both Asia and Latin America but more pervasive in Asia. It has been estimated that of all tenanted land, some 84.5% is sharecropped in Asia but only 16.1% in Latin America. The institu-tion is almost unknown in Africa, where the typical arrangement continues to be farms operated under tribal or communal tenures. For example, it has been estimated that about 48% of all tenanted land is sharecropped in India, 60% in Indonesia, and 79% in the Philippines. Though common in Colombia, sharecropping is unusual elsewhere in Latin America; for example, it has all but disappeared in Peru.25

Landlord The proprietor of a freehold interest in land with rights to lease out to ten-ants in return for some form of compensation for the use of the land.

Sharecropper A tenant farmer whose crop has to be shared with the landlord, as the basis for the rental con-tract.

Tenant farmer One who farms on land held by a landlord and therefore lacks ownership rights and has to pay for the use of that land, for example, by giving a share of output to the owner.

455 CHAPTER 9Agricultural Transformation and Rural Development

The creation of individual titles to land made possible the rise to power of

another dubious agent of change in Asian rural socioeconomic structures, the

moneylender. Once private property came into effect, land became a negotia-ble asset that could be offered by peasants as security for loans and, in the case of default, could be forfeited and transferred to the often unscrupulous mon-eylender. At the same time, Asian agriculture was being transformed from a subsistence to a commercial orientation, both as a result of rising local demand in new towns and, more important, in response to external food demands of colonial European powers. With this transition from subsistence to commer-cial production, the role of the moneylender changed drastically. In the subsis-tence economy, his activities had been restricted to supplying the peasant with money to tide him over a crop failure or to cover extraordinary ceremonial expenditures such as family weddings or funerals. Most of these loans were paid in kind (in the form of food) at very high rates of interest. With the devel-opment of commercial farming, however, the peasant’s cash needs grew sig-nificantly. Money was needed for seeds, fertilizer, and other inputs. It was also needed to cover his food requirements if he shifted to the production of cash crops such as tea, rubber, or jute. Often moneylenders were more interested in acquiring peasant lands as a result of loan defaults than they were in extract-ing high rates of interest. By charging exorbitant interest rates or inducing peasants to secure larger credits than they could manage, moneylenders were often able to drive the peasants off their land. They could then reap the profits of land speculation by selling this farmland to rich and acquisitive landlords. Largely as a consequence of the moneylenders’ influence, Asian traditional peasant cultivators saw their economic status deteriorate.26 And rapid popu-lation growth often led to fragmentation and impoverishment.27 To understand the deterioration of rural conditions in some Asian coun-tries during the twentieth century, consider the cases of India, Indonesia, and the Philippines. In 1901, there were 286 million Indians; by 2013, there were more than quadruple that number. The Indonesian population grew from 28.4 million in 1900 to 210 million in 2000. The population of central Luzon in the Phili p pines increased more than tenfold from its level of 1 million from 1903 to 2003. In each case, severe fragmentation of landholdings inevitably followed so that today average peasant holdings in many areas of these countries are less than 1 hectare. As seen in Table 9.3, average farm size has fallen through-out South Asia and in Thailand.

For many impoverished families, as these holdings shrink even further, production falls below the subsistence level, and chronic poverty becomes a way of life for many. Peasants are forced to borrow even more from the mon-eylender at interest rates ranging from 50 to 200%. Most cannot repay these loans. They are then compelled to sell their land and become tenants with large debts. Because land is scarce, they are forced to pay high rents or sharecrop on unfavorable terms. And because labor is abundant, wages are extremely low. Peasants can thus get trapped in a vise of chronic poverty from which, in the absence of major rural reconstruction and reform, there is no escape. Thus, many rural Asians are gradually being transformed from small propri-etors to tenant farmers and sharecroppers, then landless rural laborers, then jobless vagrants, and finally migrant slum dwellers on the fringes of modern urban areas.28 At the same time, many other farmers have benefited from the Moneylender A person who lends money at high rates

of interest, for example to peasant farmers to meet their needs for seeds, fertilizers, and other inputs.

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PART Two Problems and Policies: Domestic

enormous productivity gains resulting from the Green Revolution; yet for an increasing number of them, environmental problems such as rapidly falling water tables represent new and looming challenges.

Again, as noted in Chapter 2, colonial practices often had long-lasting influences. In the case of India, regions in which property rights to land were given to landlords had significantly lower productivity and agricultural investments—and significantly lower investments in health and education—in the postindependence period than regions in which property rights were given to cultivators.29

Subsistence Agriculture and Extensive Cultivation in Africa

Subsistence farming on small plots of land is the way of life for the majority of African people living in agriculture-based economies. The great majority of farm families in tropical Africa still plan their output primarily for their own subsistence. There are important exceptions, including the sugar, cocoa, cof-fee, tea, and other plantations in East and West Africa; and farms devoted to such export crops as green beans in Niger, cut flowers in Kenya and Ethiopia, legumes in Tanzania, and other contract farming arrangements.

Since the basic variable input in traditional African agriculture is farm family and village labor, African agriculture systems are dominated by three major characteristics: (1) the importance of subsistence farming in the village community; (2) the existence of some (though rapidly diminishing) land in excess of immediate requirements, which permits a general practice of shifting cultivation and reduces the value of land ownership as an instrument of eco-nomic and political power; and (3) the rights of each family (both nuclear and extended) in a village to have access to land and water in the immediate terri-torial vicinity, excluding from such access use by families that do not belong to the community even though they may be of the same tribe. Where traditional systems are breaking down, inequality is often increasing.

The low-productivity subsistence farming characteristic of most tradi-tional African agriculture results from a combination of three historical forces restricting the growth of output:

1. In spite of the existence of some unused and potentially cultivable land,

only small areas can be planted and weeded by the farm family when it uses only traditional tools such as the short-handled hoe, the ax, and the long-handled knife, or panga . In some countries, use of animals is impos-sible because of the tsetse fly or a lack of fodder in the long, dry seasons, and traditional farming practices must rely primarily on the application of human labor to small parcels of land. 2. Given the limited amount of land that a farm family can cultivate in the

context of a traditional technology, these small areas tend to be intensively cultivated. As a result, they are subject to rapidly diminishing returns to increased labor inputs. In such conditions, shifting cultivation is the most economic method of using limited supplies of labor on extensive tracts of land. Under shifting cultivation, once the minerals are drawn out of the soil as a result of numerous croppings, new land is cleared, and the process of planting and weeding is repeated. In the meantime, formerly

Shifting cultivation Till-ing land until it has been

exhausted of fertility and then moving to a new parcel of land, leaving the former one to regain fertility until it can be cultivated again.

Subsistence farming Farm-ing in which crop production, stock rearing, and other activi-ties are conducted mainly for personal consumption.

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