Is Agriculture an Answer Development

Name: Nihal El-Banna
Student ID: 322304
Course Title: Political Economy of Agriculture and Food
Professor: Deborah Johnston

To what extent are agricultural transformations and modernization still necessary for economic development in contemporary low-income countries? Illustrate your arguments with reference to concrete cases.

Introduction:

Recently, several new comers to the middle income countries category, namely in North Africa, have made it above the $1.25 poverty line without experiencing an increase in agriculture contribution to GDP or working toward advancing this sector (r IFRP). This example is most intriguing since many non-oil exporting countries of North Africa had historically important agriculture sectors (El-Ghonemy, 1993) just as many of the still low-income group has/had in the near past and hence the former group might be of significant relevancy to lessons needed for the general development of the latter. Similarly, Latin American countries are experiencing better growth rates lately yet the contribution of agriculture to total GDP is not particularly faring better. Nevertheless, given the large numbers of people engaged in agricultural or related rural activities in low-income countries on the one hand and the structural limitations of developing other sectors providing alternative livelihoods for the majority in such countries, on the other, limit the scope of relevancy of North Africa and Latin America’s configuration of the relationship between agricultural and industrial sectors. Low-income countries should raise questions evaluating the possibility of attaining economic development without for example burdening state budgets with investments in agriculture in several case studies of low-income countries (sections II below). Another set of questions is how investment in agriculture might still help achieve necessary socio-economic transformation and development (given positive agricultural-endowments) even though the direct contribution of agriculture sector to GDP might be on the fall generally over time (sections III below). Generally, there are pressing qualifications for investment in agriculture in low-income countries still, however a development in such sector would not automatically contribute to a developed industrial and economy generally. This argument is especially important given the nuances of how there are different groups in the agricultural sector and how only a few groups can benefit from investments in such sector or newly developed linkages created with the industrial one.

Section II:

Why is investment in agriculture important for the economy as a whole despite an increasing irrelevance of a neoclassical emphasis on surplus value and labor transfer from agriculture to industry?

Where debates still continue on whether a developed agricultural sector is a pre-requisite for an industrial take-off, and if so, then how best to extract the surplus from the former for such investments, Mundle (1985) recognizes the now historical obligation on developing countries, including low-income ones, to catch-up fast in manufacturing to sell in competitive int’l markets without necessarily realizing ‘enough’ surplus from the agricultural sector which developed countries seemed to employ earlier. This is compelling since the technology frontier and hence quality of manufactured products continue to rise by world leaders and competitors while the agricultural sector is either not receiving enough attention from policy makers (Lipton, 1993); plus output and productivity are stagnant and its absolute contribution to GDP is declining (IISS, 2011; IFPRI on MENA, 2010); also the transfer of surplus is politically not viable anymore in many places (Byres, 2003; Kay, 2002). So contrary to neoclassical proponents’ blame of inefficient agricultural sectors not extracting enough surplus on government intervention or lack of good governance midst corruption and rents for farmers, the problem is that the rules of the game for industrial catch-up and pressure for integration in international commodity markets requires a discussion beyond an unrealistic high surplus extraction from a stagnant agricultural sector.

Learning through near past experiences, South Korea and Taiwan were successful in achieving a competitive industry, moving up the ladder of quality artefacts mainly by being able to manage and discipline the investment incentives of capitalists (Kay, 2002). These countries also due to political configurations were able to suppress small peasants quests for less taxation or However, since then states have been politically constrained in creating similar incentives especially in Latin America and lower-income countries in Africa or even Bangladesh and the learning-rent has been on-going for so long that it became increasingly damaging for the economy as a whole prohibiting a new configuration favouring a new comparative advantage in industry and shifting the revenue and production pressure off the agricultural sector. Agricultural surplus in the past has been misused when transferred to the industrial sector (Kay, 1989) just like how capital market finance is still misused now when directed towards the manufacturing process to catch up in many cases (Khan, 2009). In the past and present, there it is a time-consuming process developing an industrial sector to catch-up for global commodity competition. This time-lag between investment and realization of bettering production and tacit learning in industry means that industrialization requires more and cannot depend on agricultural growth/surplus only even when surplus creation processes are successful. Diao, Hazell, Resnick&Thurlow (2007) explain how surplus creation policies are sufficient to push industry). On-going politico-economic configurations in low-income countries would not allow for timely-transformation and hence a high dependence on agriculture for surplus like in the past is most likely damaging to the overall economy.

In sum, given the unequal distribution of political power (and competing political and economic groups) and capital (Chang, 2003; Khan 2009) the state cannot expect to reach a competitive industry (with low quality production still) smoothly without intervention or with an ignored agricultural sector with no state intervention and expect overall economic growth. On the other hand, Kay (2002) argues that in the near past good state management on South Korea and Taiwan’s agri-sector was key to a smooth industrialization which required a strong domestic agricultural market for its products unlike a lagging agri sector in a never realized in Latin America. However, he makes the point later (2009) that historically a strong agri-sector prior to industrial take-off was not necessarily a pre-requisite across the board. He echoes Khan (2012) a successful industry and overall growth in both sectors depends on the capacity of the state of allocating initial endowments for industry (and that its financial sources can vary for example Kay (2009) explains that sources of investment to South Korea – and to a lesser extent Taiwan - were never limited to surplus extraction but also food aid helped and foreign-investment and foreign aid due to geo-political preferences) and disciplining further allocation based on performance later. Also, given the politico-economic structures, explained above, which might increase the time lag for industrial take-off in low-income countries just as happened in Latin America (Kay, 2002), letting industrial learning rents depend solely on agricultural sector may cause an adverse over-squeezing for a time long enough to jeopardize dynamism and growth of agriculture as a whole.

The point now is that the agricultural sector can be dynamic - given the state has the capacity to encourage such dynamism - creating its links with industries (especially agro-processing) and should develop and this should not necessarily be motivated by a need for a physical space as reservoir of labor as Wolf eloquently critiques the classical simplistic mechanism (1957). The agri-sector should grow and develop in such a way that the configuration of labor movement to the industrial sector should be made subject to the industry’s capacity to absorb more labor (just like Kay (2009) describes events in South Korea) whilst the state directs and provides information and services encouraging a growth of the agri-sector complementary to industrial-agricultural dynamism and reservation of strategic food production for domestic markets.

Section III:

Even if the agricultural sector today is not as necessary for industrial take-off in (compared to old times) low-income countries, it is still important for development.

The debate of which one – agriculture or industry – comes first have been tackled above in section II where one reached a balanced view on how the catching-up pedagogy might oblige low-income countries to maintain growth at both sectors simultaneously. Most importantly, since the economic structures of such late comers to industry is exacerbated by heavy industrial competition and a general need to increase development (and decrease poverty) an agricultural economy needs to keep vibrant creating dynamic interlinks and intermediate sectors or what Kay (2009) calls “mutually-reinforcing” factors for both sectors to continue growing. This is especially true when clamping down on agriculture sector (either by policies actively shrinking it or mere neglect through significantly rationing related state budget and intervention) both market dynamism necessary for growing industry (or the economy generally) and sustaining growth are jeopardized.

In other words, a failure to have a growing agriculture sector whilst there is not really developed industry would undoubtedly negatively affect long term human development and consequently a factor of production in both agriculture and industry. If the state does not withstand a strategic support for agriculture sustainability and investment there will a) undermine a significant home market for domestic emerging industries (Martin, 2002), and b) ration food production forcing foreign reserves out for importing food and diverting it from industrial investment (Lipton, 1993; Harrigan, 2012; Bush, 2012). Rationing food production precisely brings about a problem as severe as food insecurity or just negative human development like child stunting (IFRP, 2010) and related problems.[1] Such problems are specifically highly adverse for countries which are now subject to developing both sectors together and do not necessarily have a luxury or capability of transferring large consistent amount of surplus from agri-to-industry. Diao, Hazell, Resnick&Thurlow (2007) echo some neoclassical proponents’ arguments for increased food security so that investment is not constrained by foreign exchange constraints created by food imports. Political economic theorists would agree but for an additional motivation concerned with overall growth and advising countries to invest is agri-food subsectors even if it deviates a little from comparative advantage calculations (Harrigan 2012; Bush,2012).
For example, leaving out agriculture in countries not clearly developed with an expanding productive industrial sector (whether financed by successful financial sector or direct surplus extraction from agriculture) risked much on development in cases of North Africa and Latin America. Turkey with similar agricultural structure to that of North Africa, only cut on agricultural development when the added value contribution of its manufacturing and services sectors took off ((IFRP, 2010). Meanwhile, North Africa and Latin America do not spend much on agricultural development (though the growth in expenditure and output in the latter group is higher than the former, see (IFRP, 2010; FAO,2007) and value added in this sector lags behind Turkey’s where also food related development for example is better in too (ibid). As a result, according to the same report, North Africa has compromised its overall growth (ibid). Lipton (1993) would comment on such pattern strongly going as far as ascertaining a bias of state intervention towards an industrial urban milieu. He explains it as an “inefficient allocation and inequitable distribution of resources that perpetuates low rates of growth and poverty in LDCs” generally and in India specifically (cited in Kay 2009: 110). The fragility of manufacturing economies in Latin America (Kay, 2009) and North Africa (Fattah, 2003) demonstrates a lesson for low-income countries.

Policy makers however need not necessarily go as far as to agree with Lipton (1993) in the superior role which agriculture plays over industry. He argues that the state shall rather put more emphasis on agricultural growth in LDCs since increased investment in agriculture would undoubtedly yield higher rate of return than in industry and that his investigation of the Indian sector confirms such general impression. Interestingly, there is room for improvement due to what GR has to offer, for example, Belloumi and Matoussi (2009) report on Nin etal. (2003) and Coelli and Rao (2003) findings of prospects for positive agricultural growth in low-income countries when applying a regional technology frontier in calculations (instead of international). Usually, literature up-till such research showed negative agricultural productivity in LDCs which discouraged investment in agriculture (ibid). Accordingly, they show room for increase in total factor productivity with increase in relevant investments in sub-Saharan African, North Africa and other LDCs. Nevertheless, there still needs to be investment in agriculture but not necessarily expecting higher yields than in industry if the catch-up is successful in low-to-moderate quality manufactured commodities.

The picture becomes stronger for continued investments and developments in agriculture for policy implications especially if we tackle the question of which population groups exactly suffer more due to under-development and whether they are amongst the underemployed disenchanted urban or affecting small farmers or wage farmers the most (Bernestein, 2009). Only on knowing such answers would the state be able to design appropriate policies of agricultural intervention to keep the sector growing and food is secured strategically for the poor and for a growth which helps the industrial sector capitalize on it once a “break-even” of competitive industries is achieved to trade on global markets (this point is best elaborated by the “mutual” contributions by both sectors in Kay 2009). But more importantly, policy makers should keep in mind investing in agriculture also increases growth in complementary sectors such as transport and other services which address the need of a more stratified rural population as dynamics for rural production continue to change and more labor become dependent on non-farm work but related to rural activities or links between rural and urban (Bernestein, 2009). Investment in the agricultural sector would ensure such poorest in rural labor are caught up in better wages and conditions than if there were no adequate state knowledge and intervention to grow an agricultural sector and catching the potentially informal in it. While, Prowse & Chimhowu (2007) argue that state investment in infrastructure and extension services is key to agri-growth and similarly Teranishi (1997cited in Kay, 2002:1092) such investments including learning via service-extensions is associated with overall economic growth, still Kay (2002) and Change (2009) make the point that such are only relevant if the state is able to design and influence agro-dynamism.

Conclusion:

The arguments above echo a position closest to what Kay (2009) makes for exploring resource flows from different sectors growing around and by agriculture as the state continues to invest in its infrastructure targeting an increased productivity and expansion. Learning-rents in industry should go on but the dynamism and modernization of agriculture should protect agriculture growth being susceptible to failure of such industrial rents. Also, if modernization of agriculture is configured upon an understanding of rural population occupations and endowments in different country cases, then the rosy picture which Byres’ (2009) resource neutrality and Hayami and Ruttan’s (1985) productivity-inducing innovation draw on benefits of green revolution on different strata of the rural population can be relevant. On another hand, the picture of a reservoir of rural labor who have low productivity or are unemployed would be limited as per increased investment and expansion in agriculture. Most importantly, this discussion needs to surpass the limited binary of state-market intervention/superiority moving towards a study of each capabilities and what actually works in different cases (Chang, 2009).

Words, without question head references and student information: 2490.

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Bush, Ray. (2012 forthcoming) “Food Security and Food Sovereignty in Egypt,” Chapter in Babar, Z. and Kamrava, M. (eds) Food Sovereignty in the Middle East, Husrt.

Byres, T. (2003) ‘Paths of Capitalist Agrarian Transition in the Past and in the Contemporary World’, chapter 2 in V.K. Ramachandran and M. Swaminathan (eds.) Agrarian Studies: Essays on Agrarian Relations in Less-Developed Countries. London: Zed Books.

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Washington DC

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[1] Diao, Hazell, Resnick&Thurlow (2007) comment extensively on literature showing the importance of nutrition to productivity and growth on medium term such as Nadav (1996) and Fogel (1991). This view on nutrition (determined by stunting) effect on growth generally is not seriously counter-argued.

Bibliography: Belloumi, Mounir, and Mohamed Salah Matoussi. "Measuring agricultural productivity growth in MENA countries." Journal of Development and Agricultural Economics 1.4 (2009): 103-113. Bernstein H. (2009). ‘Agrarian questions from transition to globalization’. In A. H. Akram-Lodhi and C. Kay (eds.) Peasants and Globalization: Political economy, rural transformation and the agrarian question. London: Routledge, 239-261 Bush, Ray Byres, T. (2003) ‘Paths of Capitalist Agrarian Transition in the Past and in the Contemporary World’, chapter 2 in V.K. Ramachandran and M. Swaminathan (eds.) Agrarian Studies: Essays on Agrarian Relations in Less-Developed Countries. London: Zed Books. Chang, H.-J. 2003. Globalisation, economic development and the role of the state. London: Zed Books. Chang, Ha-Joon (2009): “Rethinking public policy in agriculture: lessons from history, distant and recent”, Journal of Peasant Studies, 36:3, 477-515 El-Ghonemy, M. (1993), “Food Security and Rural Development in North Africa”, Middle Eastern Studies, vol Fattah, Z. (2003) ‘The Global industrial Scene and the MENA region’ Economic Research Forum working papers. FAO (2007), The Status of Rural Poverty in the Near East and North Africa, Near and North Africa Division Harrigan, J Hayami, Y. and Vernon Ruttan (1985) Agricultural Development: An International Perspective, London, Johns Hopkins University Press. IFPRI (2010), Middle East and North Africa Strategy, www.ifpri.org/sites/default/files/publications/menastrategy.pdf Kay, C. 1989. Latin American theories of development and underdevelopment. London: Routledge. Kay, C. (1989). Latin American theories of development and underdevelopment. London, Routledge Kay, Cristobal (2002), ‘Why East Asia overtook Latin America: agrarian reform, industrialisation and development’, Third World Quarterly, vol 23 (6), pp Kay, C. (2009). ‘Development strategies and rural development: exploring synergies, eradicating poverty’, Journal of Peasant Studies, 36 (1): 103-137. Khan, Mushtaq (2012) Growth, Institutional Challenges and the Political Settlement in Bangladesh.London: (Forthcoming) http://www.soas.ac.uk/staff/staff31246.php Lipton, M Mundle, Sudipto (1985) ‘The Agrarian Barrier to Industrial Growth’, Journal of Development Studies, 22, No Prowse, Martin and Admos Chimhowu, 2007. Making Agriculture Work for the Poor, Overseas Development Institute, Natural Resource Perspectives Wolf, Eric (2001), “Closed Corporate Peasant Communities in Meso-America and Central Java,” Southwestern Journal of Anthropology, Vol World Bank (2007). Agriculture for Development, World Development Report 2008.