3b Agricultural development and food security Overview Role of agriculture in development Implications of land scarcity The Green Revolution Growth and distributional impacts of the GR Food security and other discussion Importance of agricultural growth Ensure food supply and/or save foreign exchange  Achieve food self-sufficiency in closed economies; in open economies, earn export revenues or save foreign exchange Generate labor surplus  Potential rural-urban migrants to supply non-ag labor force Fiscal and financial surpluses  Private savings from ag profits  Public savings from ag taxation Demand ‘linkages’  Where purchasing power is sufficient, ag growth raises demand for output of other sectors Consequences of lack of agricultural growth SE Asian demographic transition: population growth rates around 3% in 1960s-70s  Rising demand for food – and jobs Arable land is limited in supply: area per person falling Ag uses land and labor to produce food – so just use intensify labor use on existing land! But… Diminishing returns lower L productivity  lower increases in food output  falling real wages  economic distress and political unrest  Land is less equally distributed than income Gini coefficients for inequality of income and land ownership: E Asia and Pacific 1950s Income Land 0.45 1960s 1970s 1980s 1990s 0.35 0.34 0.34 0.35 0.47 0.49 0.50 0.41 Source: Deininger and Squire, J Devel Econ 1998 Note: Gini measures inequality: most equal = < G < = most unequal  Ag stagnation with growing pop’n: w/pM  Decline of ag output per capita will raise food prices and VMP of labor in agriculture - when measured in terms of industry price  This will slow rate of transfer of L to industry, raising unit labor costs and reducing industrial profit rate and savings (diagram) – “Ricardian hell”: steady state with subsistence wage (due to dim returns) & zero net additions to capital stocks L supply (from ag.) Industrial L demand Labor in industry • Where will surpluses then be concentrated? Getting agriculture moving Get more effective land area:  Expand at frontier where available (Thailand, parts of Indonesia outside Java)  Irrigate suitable areas – double cropping  Adopt land-saving technologies – raise yields per unit of land Green Revolution = package of land-saving technologies  Increased food output  prevented famine  Raised labor productivity  Lowered food prices  raised real wages for urban workers  Lowered relative value of land  defused some political conflict What is needed for agricultural growth? If using traditional technology  More inputs of land, labor  Problem: shortage of land, in spite of irrigation investments If making a shift to new technology  More capital (embodied in fertilizer, seeds, farming skills)  Problems: capital shortages, research leads and lags, complementary inputs (rural credit) In SE Asia, 1960s-70s, land-abundant economies took 1st option; land-scarce economies took 2nd option Green Revolution in Asian rice International Rice Research Institute (Philippines) founded 1960 New rice plant types (1965 +)  Developed by international researchers (technology transfer)  More nitrogen-responsive (fertilizer-using)  Non-photoperiod sensitive (non-seasonal, shorter growing season)  Thus more output per unit of land planted GR largely solved problem of land scarcity in Asia from 1970s to 1990s 10 11 Yields rose fastest in land-scarce economies Growth rates (% per year) of rice output, area, & yield 1955-65 1965-87 Output Area Yield Output Area Yield Philippines 2.3 0.9 1.4 3.8 0.2 3.6 Indonesia 1.5 0.7 0.8 5.3 1.3 Thailand 6.7 2.8 3.9 2.5 0.5 (Philippines/Indonesia: land-scarce, net importers, Thailand: land-abundant, net exporter)  In food-importing countries, early output growth relied equally on yield growth and area expansion  In later years, growth in land-scarce economies came from yield gains alone 12 The green revolution in a Philippine village 13 14 Institutions matter! The case of Vietnam Issues constraining agricultural development in VN  Access to modern inputs – such as new varieties of rice  Access to markets, storage, and processing facilities  Security of land tenure – investment incentives, credit access  Restrictions on land use and farm consolidation Productivity in VN rice agriculture has risen during periods of rapid reform, and has slowed when pace of reform slowed down  Improved terms of trade for ag have caused TFP growth  And had indirect benefits – children in school (Haughton)  Secure property rights associated with higher yields 15 16 Topics for discussion Distributional consequences of the GR  Symbiosis: land reform is easier where GR gains largest  Why? Ricardian process in reverse: effective land area increase makes it less scarce, raises labor productivity Purchasing power and food security: agricultural prices in general equilibrium Food self-sufficiency vs food security: economics or politics? Food prices are now rising again: time for a second Green Revolution? 17 Tomorrow: global shocks, local responses The oil price shocks and Indonesian development  Theory review: non-traded goods and the real exchange rate (look at Corden and Neary article from Brad’s class)  Dutch Disease  Policies to address D.D Debt and development: the Philippine currency crisis  Global shocks and macroeconomic imbalances  Dealing with imbalances: accommodate or adjust? Review and Q&A 18 ... complementary inputs (rural credit) In SE Asia, 1960s-70s, land-abundant economies took 1st option; land-scarce economies took 2nd option Green Revolution in Asian rice International Rice Research... Indonesian development  Theory review: non-traded goods and the real exchange rate (look at Corden and Neary article from Brad’s class)  Dutch Disease  Policies to address D.D Debt and development: ... equally distributed than income Gini coefficients for inequality of income and land ownership: E Asia and Pacific 1950s Income Land 0.45 1960s 1970s 1980s 1990s 0.35 0.34 0.34 0.35 0.47 0.49 0.50