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