Agricultural economics
Agricultural economics, study of the allocation, distribution, and utilization of the resources used, along with the commodities produced, by farming. Agricultural economics plays a role in the economics of development, for a continuous level of farm surplus is one of the wellsprings of technological and commercial growth.
In general, one can say that when a large fraction of a country’s population depends on agriculture for its livelihood, average incomes are low. That does not mean that a country is poor because most of its population is engaged in agriculture; it is closer to the truth to say that because a country is poor, most of its people must rely upon agriculture for a living.
Agriculture And Economic Development
As a country develops economically, the relative importance of agriculture declines. The primary reason for that was shown by the 19th-century German statistician Ernst Engel, who discovered that as incomes increase, the proportion of income spent on food declines. For example, if a family’s income were to increase by 100 percent, the amount it would spend on food might increase by 60 percent; if formerly its expenditures on food had been 50 percent of its budget, after the increase they would amount to only 40 percent of its budget. It follows that as incomes increase, a smaller fraction of the total resources of society is required to produce the amount of food demanded by the population.
Progress in farming
That fact would have surprised most economists of the early 19th century, who feared that the limited supply of land in the populated areas of Europe would determine the continent’s ability to feed its growing population. Their fear was based on the so-called law of diminishing returns: that under given conditions an increase in the amount of labour and capital applied to a fixed amount of land results in a less-than-proportional increase in the output of food. That principle is a valid one, but what the classical economists could not foresee was the extent to which the state of the arts and the methods of production would change. Some of the changes occurred in agriculture; others occurred in other sectors of the economy but had a major effect on the supply of food.
In looking back upon the history of the more developed countries, one can see that agriculture has played an important part in the process of their enrichment. For one thing, if development is to occur, agriculture must be able to produce a surplus of food to maintain the growing nonagricultural labour force. Since food is more essential for life than are the services provided by merchants or bankers or factories, an economy cannot shift to such activities unless food is available for barter or sale in sufficient quantities to support those engaged in them. Unless food can be obtained through international trade, a country does not normally develop industrially until its farm areas can supply its towns with food in exchange for the products of their factories.
Economic development also requires a growing labour force. In an agricultural country most of the workers needed must come from the rural population. Thus agriculture must not only supply a surplus of food for the towns, but it must also be able to produce the increased amount of food with a relatively smaller labour force. It may do so by substituting animal power for human power or by gradually introducing labour-saving machinery.
Agriculture may also be a source of the capital needed for industrial development to the extent that it provides a surplus that may be converted into the funds needed to purchase industrial equipment or to build roads and provide public services.
For those reasons, a country seeking to develop its economy may be well advised to give a significant priority to agriculture. Experience in the developing countries has shown that agriculture can be made much more productive with the proper investment in irrigation systems, research, fertilizers, insecticides, and herbicides.
Fortunately, many advances in applied science do not require massive amounts of capital, although it may be necessary to expand marketing and transportation facilities so that farm output can be brought to the entire population.
One difficulty in giving priority to agriculture is that most of the increase in farm output and most of the income gains are concentrated in certain regions rather than extending throughout the country. The remaining farmers are not able to produce more and actually suffer a disadvantage as farm prices decline. There is no easy answer to that problem, but developing countries need to be aware of it; economic progress is consistent with lingering backwardness, as has been seen in parts of southern Italy or in the Appalachian area of the United States.
Peasant agriculture
One characteristic of undeveloped peasant agriculture is its self-sufficiency. Farm families in those circumstances consume a substantial part of what they produce. While some of their output may be sold in the market, their total production is generally not much larger than what is needed for the maintenance of the family. Not only is productivity per worker low under those conditions, but yields per unit of land are also low. Even where the land was originally fertile, the fertility is likely to have been depleted by decades of continuous cropping. The available manures are not sufficient, and the farmers cannot afford to purchase them elsewhere.
Peasant agriculture is often said to be characterized by inertia. The peasant farmer is likely to be illiterate, suspicious of outsiders, and reluctant to try new methods; food patterns remain unchanged for decades or even centuries. Evidence, however, suggests that the apparent inertia may be simply the result of a lack of alternatives. If there is nothing better to change to, there is little point in changing. Moreover, the self-sufficient farmer is bound to want to minimize risks; since a crop failure can mean starvation in many parts of the world, farmers have been reluctant to adopt new methods if doing so would expose them to greater risks of failure.
The increased use worldwide of high-yielding varieties of rice and wheat from the 1960s showed that farmers were willing and able to adopt new crops and farming methods when their superiority was demonstrated. Those high-yielding varieties, however, required increased outlays for fertilizer, as well as expanded facilities for storage and distribution, and many developing countries were unable to afford such expenditures.
The labour force
As economic development proceeds, a large proportion of the farm labour force must shift from agriculture into other pursuits. That fundamental shift in the labour force is made possible, of course, by an enormous increase in output per worker as agriculture becomes modernized. That increase in output stems from various factors. Where land is plentiful, the output per worker is likely to be higher because it is possible to employ more fertilizer and machinery per worker
Efforts To Control Prices And Production
In the second half of the 20th century, governments undertook to control both prices and output in the agricultural sector, largely in response to the pressures of the farmers themselves. In the absence of such control, farm prices tend to fluctuate more than do most other prices, and the incomes of farmers fluctuate to an even greater degree. Not only are incomes in agriculture unstable, but they also tend to be lower than incomes in other economic sectors.
The problem
Instability of prices
The instability of farm prices results from several factors. One is the relative slowness with which farmers are able to respond to changes in the demand for their product. Farmers generally must produce on the basis of expectations, and if their expectations turn out to be wrong, the resulting surplus or shortage cannot be corrected until the beginning of the next production cycle. Once a crop is planted, very little can be done to increase or decrease production in response to market prices. As long as prices cover current operating costs, such as the cost of harvesting, it pays farmers to carry through their production plans even if prices fall to a very low level. It is not unusual for the prices of particular farm products to vary by a third or a half from year to year. That extreme variability results from the relatively low responsiveness of demand to changes in price—i.e., from the fact that in order to increase sales by 5 percent it may be necessary to reduce the price by 15 percent.
Instability of income
The instability of farm prices is accompanied by instability of farm income. While gross income from agriculture generally does not vary as much as do individual farm prices, net income may vary more than prices. In modern agriculture, costs tend to be relatively stable; the farmer is unable to compensate for a drop in prices by reducing his payments for machinery, fertilizer, or labour.
The incomes of farm workers are generally below those of other workers. There are two major reasons for that inequity. One is that in most economies the need for farm labour is declining, and each year large numbers of farm people, especially young ones, must leave their homes to seek jobs elsewhere. The difference in returns to labour is required to bring about that transfer of workers out of farming; if the transfer did not occur, farm incomes would be even more depressed. The second major reason for the income differences is that farm people generally have less education than do nonfarm people and are able to earn less at nonfarm jobs. The difference in education is of long standing and is found in all countries, developed and undeveloped; it also exists whether the national education system is highly decentralized, as in the United States, or highly centralized, as in France.
Kinds of farm operation
If a family farm is defined as one for which the farm operator and family members supply at least half of the labour, the majority of farms in the world are family farms. Family farming is carried on under a wide range of conditions, from the small farms of Asia to the highly mechanized farms of Canada, the United States, and the United Kingdom.
The family farm may be owned by the farmer or rented. The most rapidly expanding type of tenure in the United States is that in which the farmer owns part of the land and rents the remainder; almost one-third of all farmland in the United States consists of part-owner farms. This arrangement enables the farmer to increase the size of the farm through renting and to invest capital in machinery and livestock.
Family farms may be large in terms of total assets or sales. The relative importance of family farms among the largest farms in the United States has increased over the past few decades. One of the more striking changes in industrial countries has been the increased importance of nonfarm income received by farm families. In the United States, Canada, and Japan more than half of the total income of farm families comes from nonfarm sources, while in most western European countries at least a third of the income of farm families is earned outside of agriculture.
A system of tenant farming known as sharecropping developed in the South of the United States following the freeing of the slaves in the 19th century. It was essentially an adjustment of the plantation system created to permit the owners to maintain a large measure of control over farm operations. The sharecroppers usually supplied only the labour, while the owners provided animal power, machinery, and most of the other inputs in the form of an advance. The sharecroppers received what was left after they had paid back the owners—generally about half of what had been produced.
For various reasons, including the exodus of blacks from American agriculture, the introduction of farm machinery, and the reduction in the acreage of cotton, the number of sharecroppers in the South has diminished drastically since 1935.
In the second half of the 20th century, there began a growth of large-scale farming run as a business enterprise. Such “industrial farms” are of growing significance in world agriculture. There are farms covering extensive areas of land in Africa, South America, Australia, and the United States, where farms became larger as their numbers grew smaller. Such large farms tend to specialize in the production of vegetables, fruits, cotton, poultry and poultry products, and livestock.
0 Comments