A New Challenge for Agriculture in Low and
Middle Income ECA Countries
1
Analytical Framework
Trends in Farm Mechanization
Rationale – understanding these trends
Conclusions – where to from here
2
Trends in mechanization conditioned by
◦ Approach to reform
European Accession Countries plus Turkey
Transition Countries
Truncated Reform Countries
◦ Resource endowments at beginning of reform
Labor Intensive production
Labor Extensive production
3
4
Tractor Use
Horse Use
Combine Use
5
6.00
1990
1995
2000
2005
Tractors/100 ha Arable Land
5.00
4.00
3.00
2.00
1.00
0.00
LEEU
LETRA
LETRU
LIEU
LITRA
LITRU
6
12
1990
1995
2000
2005
Horses/100 ha Arable Land
10
8
6
4
2
0
LEEU
LETRA
LETRU
LIEU
LITRA
LITRU
7
0.6
1990
1995
2000
2005
Combines/100 ha Arable Land
0.5
0.4
0.3
0.2
0.1
0
LEEU
LETRA
LETRU
LIEU
LITRA
LITRU
8
Wage Rates (and supply of rural labor)
Interest Rates
9
600.00
1996
2000
2005
$US/month (2000=100)
500.00
400.00
300.00
200.00
100.00
0.00
LEEA
LETRU
LIEA
LITRA
LITRU
10
11
120.00
1996
2000
2005
100.00
% Interest
80.00
60.00
40.00
20.00
0.00
LEEA
LETRU
LIEA
LITRA
LITRU
12
Tractor Imports
13
120.00
LEEA
LETRU
LETRA
LIEA
LITRU
LITRA
US$/ha arable land (2000=100)
100.00
80.00
60.00
40.00
20.00
0.00
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
14
Conceptual Framework
Observed Trends in Capital/Labor Ratios (K/L)
15
16
50.00
1997
2000
2005
45.00
40.00
Tractors/100 workers
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
LEEA
LETRA
LETRU
LIEA
LITRA
LITRU
17
I. Incentives to Invest
◦ Investment rates < $10/ha until land reform and
market liberalization are well advanced.
II. Subsequent Growth in Investment –
Responds to Stronger
Financial institutions
Business Environment
Competition Policy
18
19
Wage rates – strongest influence, across all
categories
Nominal Interest rates – relevant for
accession countries
Access to Credit – important for combines
Road Density – importance of farm machinery
as a source of transport
Interest Costs vs Machinery Costs ??
20
Farm mechanization heavily influenced by
approach to policy reform
Labor costs may be more important than
interest costs.
De-mechanisation a major issue where there
is a decline in both labor availability and
machinery use.
21
Labor Extensive Truncated Reform Countries
◦ Policy measures to promote investment in farm
machinery based on reducing financial constraints
(state credit and leasing programs, subsidized
interest). Are these the real constraints ?
Labor Intensive Transition Countries
◦ Potential for increased use of low cost farm
machinery, particularly farm machinery produced by
emerging countries.
22
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