Economic Development in Asia
Chapter 5 – 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.
