Discussion Paper
No. 0118
How important are the 'non-traditional'
economic roles of agriculture in
development?
Randy Stringer
May 2001
Adelaide University
SA 5005, AUSTRALIA
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CIES DISCUSSION PAPER 0118
How important are the 'non-traditional' economic roles of
agriculture in development?
Randy Stringer
School of Economics and
Centre for International Economic Studies
University of Adelaide
Adelaide SA 5005
Phone + 61 8 8303 4821
randy.stringer@adelaide.edu.au
May 2001
Copyright 2001 Randy Stringer
________________________________________________________________________
This paper has been prepared for FAO’s ESAC Research Project, Socio-Economic Analysis
and Policy Implications of the Roles of Agriculture in Developing Countries. The paper was
presented at the 19--21 March 2001 Consultation in Rome. Thanks due to the discussants
for helpful suggestions and comments, including J. Mellor, R. Pertev, K. Stamoulis and A.
Valdés. Responsibility remains with the author. All the papers may be accessed via FAO’s
web site: www.fao.org.
ABSTRACT
How important are the 'non-traditional' economic roles of
agriculture in development?
Randy Stringer
Some good reasons explain why early approaches to identifying agriculture’s economic
roles resulted in a one-way strategic path that involved the flow of resources towards the
industrial sector and urban centres. In an effort to provide a more comprehensive view of
the roles that agriculture plays in promoting human well-being, FAO initiated the Role of
Agriculture Project (ROA) to provide a new approach to poverty alleviation and socioeconomic development.
The purpose of this report is to present examples, suggestions, and possible methods and
tools on how to document, measure and identify the functions and values of the ‘nontraditional’ economic roles that agriculture plays in the development process. The report’s
immediate aim is to provide a basis for discussion during the ‘Economic Roles of Agriculture’
session at the 19-21 March, consultation in Rome. The intent here is to provoke discussion,
rather than to capture all of the issues and details that merit analysis.
The paper presents examples to initiate the discussion and allow participants to add
substance, refine concepts and alter, delete and adapt the analytical framework as
appropriate. Six of the contributions listed in Figure 1 are outlined in some detail. Other
examples may be discussed during the consultation together with those suggested by
participants. The six examples are agriculture’s economic contributions: (i) to agribusiness
activities not usually considered part of the agricultural sector; (ii) as social welfare
infrastructure; (iii) through rapid productivity growth; (iv) to alleviating poverty; (v) to learning
and education; and (vi) to healthy and safe food. The remainder of the paper suggests
alternative methodologies, identifies various indicators and presents ways to measure their
economic importance.
Using both qualitative and quantitative methods to capture non traditional economic roles is
suggested to help understand the various functions, benefits and values . A narrative
approach would involve analyzing: the economic roles of agriculture in contributing to
agribusiness, local trade and service firms, and the social structure of rural communities; the
likely influence of new technology and economic stress on the organization and control of
agricultural resources; the relative importance of agriculture in the economic base of rural
areas; competition for resources between agriculture and other components of the rural
economy, and the importance of off-farm employment and income for farm families.
Contact author(s):
Randy stringer
School of Economics and
Centre for International Economic Studies
University of Adelaide
Adelaide SA 5005
Phone + 61 8 8303 4821
randy.stringer@adelaide.edu.au
How important are the 'non-traditional' economic roles of
agriculture in development?
Randy Stringer
Introduction and Overview
Long before Johnston and Mellor (1961) identified what are today considered the
fundamental economic contributions of agriculture to development, economists
focused on how agriculture could best contribute to overall growth and moderization.
Many of these earlier analysts (Rosenstein-Rodan, 1943; Lewis, 1954; Scitovsky,
1954; Hirschman, 1958; Jorgenson, 1961; and Fei and Ranis, 1961) highlighted
agriculture for its many resource abundances and its ability to transfer surpluses to the
more important industrial sector. By serving as the ‘handmaiden’ to the industrial
sector, agriculture’s primary role in the transformation of a developing economy was
seen as subordinate in the central strategy of accelerating the pace of industrialization.
As Vogel (1994) notes, Hirschman singled out agriculture for its failure to exhibit the
strong forward and backward interindustry linkages needed for development.
Hirschman (1958) argued that, ‘…agriculture certainly stands convicted on the count
of its lack of direct stimulus to the setting up of new activities through linkage effects:
the superiority of manufacturing is crushing’.
Over time, a traditional approach to development emerged that concentrated on
agriculture’s important market-mediated linkages. Several core economic roles for
agriculture formed this traditional approach: (1) provide labour for an urbanized
industrial work force; (2) produce food for expanding populations with higher
incomes; (3) supply savings for industrial investments; (4) enlarge markets for
industrial output; (5) earn export earnings to pay for imported capital goods; and (6)
produce primary materials for agro processing industries (Johnston and Mellor, 1961;
Ranis et al 1990; Delgado et al, 1994; Timmer, 1995).
In an effort to provide a more comprehensive view of the roles that agriculture plays
in promoting human well-being, FAO initiated the Role of Agriculture Project (ROA)
to provide a new approach to poverty alleviation and socio-economic development.
The objectives of ROA include providing policy makers with insights and tools for
informing policy options concerning the diverse roles of agriculture in the context of
greater and more sustainable development; producing a common analytical framework
and valuation tools, as well as in-depth documentation from country case studies; and
creating awareness and general appreciation of the diverse roles of agriculture in
society and how their nature, magnitude, and policy implications vary by farming
system, country setting, and through time (FAO, 2001).
The purpose of this draft report is to present examples, suggestions, advice, methods
and tools on how to document, measure and identify values of the ‘non-traditional’
economic roles agriculture plays in the development process. The report’s immediate
aim is to provide a basis for discussion during the ‘Economic Roles of Agriculture’
session at the 19-21 March, consultation in Rome. The intent here is to provoke
discussion, rather than to capture all of the issues and details that merit analysis.
More specifically, the aim of this discussion paper is to suggest answers to the
following questions: (1) What are the key conceptual issues to be addressed in
devising an approach for defining and measuring the non-secular economic impacts of
agriculture? (2) What has been done so far to study and address these issues? (3) Once
the issues have been identified, how analytical framework derives from the issues
identified? (3) What types of indicators could be used or possibly developed to
measure and compare the non-secular economic outputs of agriculture?
What do we mean by agriculture’s non-traditional economic roles?
Some good reasons explain why early approaches to identifying agriculture’s
economic roles resulted in a one way path that involved the flow of resources towards
the industrial sector and urban centres. In agrarian societies with few trading
opportunities, most resources are devoted to the provision of food. Agriculture’s
shares of national output and employment therefore start at high levels. As economic
development proceeds, agriculture’s shares of GDP and employment typically fall.
This is commonly attributed to the slow rise in the demand for food as compared with
other goods and services as incomes rise; and the more rapid development of new
technologies for agriculture, relative to those for other sectors, which leads to
expanding food supplies per hectare and per worker. A third but less-commonly
recognized phenomenon contributing to agriculture's relative decline is the rapid
growth in modernizing economies in the use of intermediate inputs purchased from
other sectors (Anderson, 2000a).
This decline in agriculture’s GDP share results partly because post-farm gate activities
(such as taking produce to market becomes commercialized and taken over by
specialists in the service sector) and partly because producers substitute chemicals and
machines for labour. Producers receive a lower price and in return for which their
households spend less time marketing. As a result, value added by the farm
household's own labour, land and capital, as a share of the gross value of agricultural
output, falls over time as purchased intermediate inputs become more important. This
increasing use of purchased intermediate inputs and off-farm services by farmers adds
to the relative decline of the producing agricultural sector per se in overall GDP and
employment (Timmer 1988, 1997; Pingali, 1997).
Agriculture’s declining share in the economy sends a confusing signal to policymakers
that agriculture is relatively unimportant. And the falling real prices of agricultural
commodities sends the signal to investors that returns are relatively unattractive
(Tyers and Anderson, 1992)
A number of development economists attempted to point that while agriculture’s
share fell relative to industry and services, it nevertheless grew in absolute terms,
evolving increasingly complex linkages to the non-agricultural sectors. This group of
economists (including Kuznets 1968; Kalecki, 1971; Mellor, 1976; Singer, 1979;
Adelman, 1984; de Janvry, 1984; Ranis, 1984; and Vogel, 1994, to name a few)
highlighted the interdependence between agricultural and industrial development and
the potential for agriculture to stimulate industrialization. They argue that
agriculture’s productive and institutional links with the rest of the economy produce
demand incentives (rural household consumer demand) and supply incentives
(agricultural goods without rising prices) promoting modernization.
This broader approach to the economic roles of agriculture suggested that the one-way
path leading resources out of the rural communities ignored the full growth potential
of their agricultural sectors. A two-way path was needed. Resources still must move
towards industry and urban centres, but with attention focused on the capital,
technological, human resource and income needs of agriculture. This required
policymakers to change strategies. Traditional macroeconomic policies that inhibited
rural sector growth through direct and indirect taxation of food producers, traders and
exporters would need to give way to a more a non-discriminatory policy environment
for agriculture (Krueger et al, 1991; Bautista and Valdés, 1993); investments in
producing technological innovations (Hayami and Ruttan, 1971; Pinstrup-Anderson,
1994; Oram, 1995); and public investments in rural incomes generating social and
physical infrastructure (Adelman, 1984; Vogel, 1994).
One aim of the ROA project is to extend our current thinking about the economic
roles of agriculture further. In particular, to identify those economic contributions for
which the market prices of agricultural activities fail to convey enough information to
secure an optimal level of those activities. (Environmental goods and services as well
food security contributions are addressed in a separate report to be presented at the
consultation. See Cooper, 2001 and Lee, 2001. FAO’s web site www.fao.org.)
Agriculture’s under-recognised, non-traditional economic roles
Figure 1 provides one way to map out a conceptual approach to the non-traditional
economic roles of agriculture. Beginning on the left hand side, the traditional
economic roles are listed as direct use contributions. Moving to the right, the next set
of contributions represent what are more commonly know as agribusiness activities,
followed by externalities and public goods on the right hand side. This mapping offers
an approach to introducing and defining the non traditional economic roles of
agriculture.
The importance and weight attached to a given role varies between and within
countries, depending on their particular situation and national priorities. These various
functions and benefits are valued differently by different people and different groups.
Local, national and international interests in agriculture’s economic roles also differ
greatly across landscapes. Moreover, the roles that agriculture is expected to play in
local, national, and global development change over time.
Agriculture’s economic contributions to agribusiness activities
While classified as direct contributions and easily measurable, the many economic
activities of agribusiness are often ignored by governments and policymakers. A large
and increasing part of economic growth during the process of development can be
attributed to those activities that support the production, marketing, and retailing of
food, textiles, clothing, shoes, tobacco, beverages, and related good for both domestic
consumers and exports.
Over time, primary agriculture gives up the processing, storing, merchandising,
transporting, and financing practices, giving way to a more complex, specialised and
integrated process. A long, circular chain evolves. Input providers, farm suppliers,
assemblers, processors, wholesalers, brokers, importers, exporters, retailers,
merchants, distributors, and consumers join the food and agricultural economic links.
Additional activities continually service these businesses, including research,
transportation, packaging, storage, futures markets, advertising and promotion (Davis
and Goldberg, 1957; Newman, et. al. 1989; Holt and Pryor, 1989; FAO, 1997).
All these agribusiness activities are totally dependent on primary production. Primary
production grows and evolves reflecting agribusiness, and agribusiness grows and
evolves reflecting primary production. They are inextricably connected. Ignoring the
large economic contributions of primary agriculture to these much faster growing
agribusiness activities presents an incomplete picture of their shared world.
Take for example, how much more agricultural commodities are used as inputs into
food processing in the industrial countries. In Argentina, Brazil, Korea Republic and
the USA, more than 60 percent of total agricultural output is used as an input into
further economic activity. Contrast this with India, where more than two thirds is
consumed directly (Holyt and Pryor, 1999).
Likewise, the more developed agricultural economies depend on more power,
machinery and agro-services. In India, some 70 percent of the total cost of processed
rice is paddy rice. In the USA, the rice is less than 6 percent of the total cost (Holyt
and Pryor, 1999). While the share of service-related input costs in the USA is more
than 20 percent, in Mexico and the Philippines it is less than 1 percent. The overall
importance of agribusiness as a share of total GDP is seen in Table 1. These linkages
may form an important part of the ROA project, providing easily measurable
contributions. In addition, the associated agribusiness industries and firms provide a
ready made interest group able to lobby, argue and articulate the economic importance
of primary producers.
Agriculture’s economic contributions as social welfare infrastructure
Moving further to the right in Figure 1 are a number of economic roles that are
provided by agriculture as semi-externalities or public goods. These are functions
which may not exist without agricultural production, but which producers are not
compensated. For instance, agriculture provides a number of welfare enhancing,
‘income’ transfer and income-shock buffer functions. For instance, a recession or
externally-induced income shock or financial crisis affects households differently,
varying across sector of employment, level of wealth, geographic location, gender,
and various other factors. Household and community welfare is effected through
changes in relative prices, in aggregate labour demand, in the rates of returns on
assets, changes in public transfers, and in the community environment --in terms of
public health or public safety (Ferreira, 1999). During a crisis, agriculture can act as a
buffer, safety net, and as an economic stabiliser (FAO, 2001).
In this way, the agriculture sector can provide a substitute for a welfare system in
those countries unable to provide unemployment insurance or other types of social
services for retiring workers and employees who lose their jobs during structural
change or income shocks. Because primary agriculture tends to be relatively flexible
regarding both the scale of operations and technology, some of the non-agricultural
unemployment caused by a severe income shock can be re-absorbed into agricultural
activities.
Agriculture tends to provide a much wider range of substitutability among factors of
production especially labour and capital, than is the case in much of industry. This
social welfare role often acts as the most important buffer between ‘poverty’ and full
blown chronic undernutrition. Thus this buffer role of agriculture keeps income
distribution within reasonable bounds to help ensure that some of the poor do not fall
below the nutrition threshold.
In addition, agriculture operates as important social welfare infrastructure in remote
locations, creating development opportunities and producing basic necessities for
isolated communities. Agriculture provides basic subsistence occupations for millions
and permits people to supply themselves with the three fundamental human needs:
food, clothing and shelter. National accounting measures too often fail to reflect the
true value of this production and capital creation within agriculture because much of it
does not enter the market as monetized values. Consequently, agriculture is often
downgraded and under recognized.
In a similar vein, agricultural workers bear many of the costs of structural change
during times of strong economic growth. If rural producers are to share in the benefits
of growth, many must leave the countryside and farming. If there were no reduction in
farm employment as economic growth occurs, most of the gains would not be
realized. For example, if primary production employment in the Australia, Canada, the
EU and the US were as high today as it was thirty years ago, the income earned in
farming would be far less. Migrations costs are borne by the migrants, including the
actual cost of moving, finding a job, locating housing, and the psychological costs of
leaving familiar conditions for conditions that are strange and, in some ways,
threatening (Johnston, 1998).
Agriculture’s economic contribution through rapid productivity growth
Over time, agriculture remains more productive than industry so the real price of food
declines, contributing to: increased savings; increased incomes; economic stability;
and overall total factor productivity. Historically, agricultural productivity growth has
been even faster than productivity growth in manufacturing. Farm productivity growth
in the agricultural-exporting rich countries has been comparatively very rapid. In the
United States, for example, total factor productivity growth since the late 1940s has
been nearly four times as fast in farming as in the private non-farm sectors (Jorgenson
and Gollop 1992), and similar performances have been found in Australia and Canada
(Martin and Mitra, 1998). As well, new technologies are capable of making food safer
and raising its quality, and of reducing any harm to the environment caused by
farming. These properties are valued more and more as people's incomes grow and as
the natural environment comes under stress.
In low-income countries where people spend a high proportion of their income on
food, even small food price increases can be detrimental to the well-being of the urban
poor and rural net-food purchasers. Many of the poorest people in low-income
countries also depend on agriculture (directly and indirectly) for their livelihoods, and
rising crop prices may actually increase their real incomes and food intake.
Agriculture’s economic contribution to alleviating poverty
Past evidence suggests that periods of high agricultural growth rates are associated
with falling rural poverty (Binswanger and von Braun, 1991; Timmer, 1992; Bell and
Rich, 1994; Johnson, 1998; Mellor, 2001). Strong agricultural growth leads to: (1)
lower food prices (for urban consumers and rural net-food buyers); (2) increased
income generating opportunities for food producers and jobs for rural workers (thus
reducing rural-urban migration, with positive consequences for real urban wage rates);
and (3) positive intersectoral spillover effects including migration, trade and enhanced
productivity (Lipton and Ravallion, 1995; Timmer, 1992).
A World Bank review concludes that higher agricultural and rural growth rates are
likely to have a ‘strong, immediate, and favourable impact’ on poverty (World Bank
1996). The review notes that agricultural growth rates exceeding 3 percent a year
produce a decline in the World Bank’s poverty index grouping by more than 1
percent. In no case did poverty decline when agricultural growth was less than 1
percent (World Bank 1996). Even the most populated countries have had great
success. In both China and Indonesia, for example, rapid agricultural growth
substantially reduced rural poverty, improved food security in both rural and urban
sectors, and provided a significant demand side stimulus for non-agricultural goods
and services. No country has been able to sustain the process of rapid economic
growth without solving its problems of marcro food security (Timmer et al, 1983;
World Bank, 1996).
In contrast, countries failing to make progress in agricultural growth experience
stagnating rural sectors, sluggish overall economic growth with declining per caput
incomes, and falling investment in rural services and agricultural infrastructure
(Binswanger and Landell-Mills 1995; FAO 1996). In addition, while rural growth has
important impacts on urban poverty reduction, urban growth has much less impact on
urban poverty reduction (Mellor, 2001).
Agriculture’s economic contribution to labour productivity through
education
Agriculture’s role in providing jobs, income and food contribute indirectly to
education which in turn provide private and public benefits. The better the education,
the more opportunities for a higher-paying job and the ability to be well-nourished and
to work more, earn more, consume more and save more. Agriculture contributes to
these increased incomes by enhancing food security (production and access via
increased incomes). As incomes increase for subsistence and other rural households,
families increasingly spend to educate their children. Thus rural households contribute
to the overall education and productivity levels of those children who migrate to
cities.
Improving access to food increases learning capacity and school performance and
leads to longer school attendance, fewer school (and work days) lost to sickness,
higher earnings, longer work lives and a more productive work force. These are
essential to economic growth. And economic growth is essential for increasing
incomes and reducing poverty. The manner in which development strategies achieve
growth, however, and the number of people who participate in and benefit from it are
as important as the growth itself.
In contrast, chronic malnutrition kills, blinds, and otherwise debilitates, reducing
physical capacity, lowering productivity, stunting growth, and inhibiting learning. In
the world’s poorest regions and countries, one-third of deaths among children are due
to malnutrition (Del Rosso 1992). Improving access to food and nutrition increases
learning capacity and school performance and leads to longer school attendance, fewer
school and work days lost to sickness, higher earnings, longer work lives and a more
productive work force.
Markets frequently do not reflect the social value of education, research and training.
Agriculture contributes indirectly to education and education is a classic example
where the benefits of increased education to society are higher than the benefits of that
education to an individual. In the case of women, the social returns to investment in
education are higher still. Investing in human capital remains one of the most
important keys to reduce poverty and bring about sustainable economic growth. Few
measures contribute more to economic development and poverty alleviation than
investing in women (World Bank, 1990; Kaito, 1994).
Education, training and access to information are directly linked to productivity and
aggregate output. A study of the determinants of real GDP covering 58 countries
during 1960-85 suggests that an increase of one year in average years of education
may lead to a three percent rise in GDP (World Bank, 1990). Virtually all studies on
agricultural productivity show that better educated farmers get a higher return on their
land. According to one study, African farmers who have completed four years of
education - the minimum for achieving literacy - produce, on average, about 8 percent
more than farmers who have not gone to school. Studies in Malaysia, Republic of
Korea and Thailand confirm that schooling substantially raises farm productivity
(World Bank, 1990).
A World Bank study estimates that the rate of return on investments in women’s
education is of the order of 12 percent in terms of increased productivity (Kaito,
1994). If women and men received the same education, says the study, farm-specific
yields would increase from seven percent to 22 percent. Increasing women’s primary
schooling alone would increase agricultural output by 24 percent (Kaito, 1994).
Women’s education also typically pays off in wage increases, with a consequential
rise in household incomes. According to a recent ILO report, each additional year of
schooling has been shown to raise a woman’s earnings by about 15 percent compared
with 11 percent for a man (Lim, 1996). Female education also has major social
returns, contributing to improved household health and welfare, lower infant and child
mortality, and slower population growth (Subbarao and Raney, 1995).
Agriculture’s economic contributions to health and food safety
Food consumers, whether motivated by green concerns or by concerns for health and
food safety, are increasingly interested in where food comes from and how it is
produced, processed, packaged and distributed. These health and food safety issues,
(together with environmental quality) are often equated to superior goods, helping to
explain why national preferences for private versus public goods consumption is a key
factor influencing production, consumption and trade patterns. Relatively high-income
economies have low income elasticity of demand for goods and services related to
sustenance and it declines as income continue to rise. On the other hand, the income
elasticity of demand for more environmental amenities is high and continues to rise.
This stands is in sharp contrast to poorer countries where the income elasticity of
demand is high for sustenance and low for environmental amenities.
Empirical studies confirm these trends. While economic growth involves increased
pollution associated with production and consumption, rising per capita incomes mean
that societies demand more environmental quality and more income is available to
protect environmental services (World Bank, 1992; Seldon and Song, 1994;
Grossman and Krueger, 1995; and Hettige, et. al. 1998). This does not imply,
however, that lower-income countries desire environmental quality less or have a low
income elasticity of demand for environmental amenities, nor that income elasticity
rises inexorably with income. But it is consistent with the fact that people in relatively
wealthy countries have greater capacity to pay for more of everything, including
higher environmental quality (Anderson, 1992; Stringer and Anderson, 1999).
Like environmental goods, consumer demand for quality attributes in general and for
food safety in particular are superior goods. Demand increases faster with income than
does demand for food in terms of quantity. Consumers in wealthier countries
demonstrate an increasing interest in food characteristics which go beyond nutritional
properties and which respond to three types of utility: health, pleasure and ethics
(Mahé and Ortalo-Magné, 1998). Pleasure is essentially a private goods. Consumers
derive satisfaction related to the hedonistic characteristics of the product itself. Health
and safety have both private and public good aspects. Ethics suggests utility can be
affected by production and processing methods.
The recent problems with BSE and with foot and mouth disease in the EU highlight
the private and public values of animal health and safe food, including the costs
associated with not supplying it.
What has been done so far to study and address these issues?
The references in the six issues presented above show only a small fraction of the
available documentation for these types of non-traditional economic benefits. Most
countries being considered for analysis in the ROA would have large literatures to
draw on. Few studies, however, provide a big picture overview which enables
synthesis and comparisons (the aim of the ROA).
An exception is recent research motivated by ‘non-trade’ concerns with respect to
agriculture and the environment acknowledge the fact that agriculture pollutes, but
that agriculture can contribute simultaneously in positive ways to the environment
(OECD, 1997). A series of studies emerged from these issues to identify various nonproduction benefits now commonly called multifunctionality (See Runge, 1999; and
Anderson 200b for important examples).
The issue of multifunctionality is not a new one, but it has attracted more attention in
recent years. In addition to OECD, the WTO Committee on Agriculture highlights
that some agricultural functions: (1) often have public goods characteristics; (ii) are
often specific to the agricultural sector; and (iii) are to a large extent provided as joint
products of the agricultural production activity itself. Some WTO member countries
have suggested specific examples, including agriculture’s contribution to food
security, the viability and development of rural areas, cultural heritage, the agricultural
landscape, agro-biological diversity, land conservation and a healthy plant, animal and
people (Norway, 1999). The question concerning a multifunctional agriculture has
resulted in debate over whether multifunctionality should be rejected or accepted as a
reason for protecting domestic agricultural production.
The joint production relationship is complex and may relate both to certain types of
input use, farming practices and technologies, and agricultural output, as well as a
combination of all these elements. For instance, an authentic agricultural landscape
cannot be provided without agricultural production activity. Moreover, as part of a
country’s long-term food security, a certain degree of domestic food production may
be judged as essential (Norway, 1999; Timmer, 1995).
Timmer (1995) makes several points regarding how markets fail to provide incentives
for agriculture’s non-production benefits. First, international prices do not reflect the
importance attached by most countries to maintaining food security. Second,
agriculture plays a special role in alleviating poverty in most Third World nations.
Third, market prices for agricultural commodities undervalue the indirect effects of
agricultural growth on providing resources for overall investment and for increasing
overall total factor productivity. Fourth, governments need to learn how to make a
market economy work and the agricultural sector offers an ideal environment within
which learning by doing can effectively occur.
How do we capture, measure and promote agriculture’s economic
roles?
Agriculture is related to the nonfarm rural sector, the urban sector, and the rest of the
world in complex relationships that continually evolve. The output of agriculture is
not homogeneous. It consists of many different products, goods and services that are
used as food, as raw materials by industry, as exports, as social infrastructure, as
productivity enhancing nutrition, as rural amenities and other related non commodity
specific benefits.
The policy implication of the earlier conception of agriculture as handmaiden to
industry was straightforward. An understanding of the diverse nature of agriculture’s
economic contributions involves recognizing its many linkages and their dynamic
effects on rising incomes, overall development, urban migration, poverty, nonagricultural growth, wealth and income distribution, as well as how agricultural,
nonagricultural, macroeconomic, and trade policies influence agricultural growth and
linkages.
The conceptual approach to analyzing the economic roles of agriculture presented in
Figure 1 suggest first measuring the direct, non-traditional economic roles of
agriculture. A qualitative and quantitative approach to non traditional economic roles
may be useful to help capture the various functions, benefits and values . A narrative
approach would involve analyzing the economic roles of agriculture in contributing to
agribusiness, local trade and service firms, and the social structure of rural
communities; the likely influence of new technology and economic stress on the
organization and control of agricultural resources; the relative importance of
agriculture in the economic base of rural areas, competition for resources between
agriculture and other components of the rural economy, with emphasis on land use
changes on the urban fringe, competing demands for natural resources (eg water in
arid regions), and competition for labour resources between agriculture and other rural
activities; and the importance of off-farm employment and income for farm families
(SOFA, 1997).
A social accounting matrix (SAM) provides a straightforward way to explore how
agricultural sectors generate the direct use of non-traditional contributions (Figure 1)
to overall economy. SAMs summarizes aggregate structural interrelationships among
the various agents in an economy by mapping the circular flows of income and
expenditures, and supply of goods and services. SAM entries represents the payment
by one account to another account for services rendered or goods supplied. It can also
represent an income transfer for jobs.
SAM data requirements are not problematic for most developing countries. In
addition, a great deal of information can be obtained from the Global Trade Analysis
Project (GTAP) data base. For example, GTAP offers the ability to look at land: (a)
land, labour and capital; (b) processed agricultural goods; (c) non agricultural inputs
used by agriculture; (d) agricultural goods used for the production of other agricultural
goods (e) agricultural outputs used by non agricultural sectors as inputs; (f) domestic
consumption; and (g) exports.
These data present a host of opportunities for analyzing the sector’s non traditional,
direct contributions. One issue with GTAP will be the availability and the quality of
country data from Africa. The upcoming version, GTAP V5, due out in April should
provide an improved data base over past years.
Identifying and measuring the indirect economic contributions are difficult and
present a number of well-known issues. It may be useful in some countries, to take a
specific public goods or externalities (the outputs, or lost potential of that output) and
attempt to measure its value with accessible market valuation techniques. For
example, value added and labour measurements (eg contribution to rural viability via
tourism); production function or human capital techniques (eg productivity increases
via improved education outcomes); replacement cost techniques (eg social welfare
infrastructure substitute and poverty reduction potential).
Some additional issues for discussion
An important issue is not to over generalize about agriculture's role. National
differences conceal great disparities in agricultural structure, the relative importance
of agricultural to the rural economy and national development, resource use conflicts
and the prevalence of off-farm employment, both among regions and among farm
types.
Since tastes and preferences change over time and differ between countries, so too
will society’s valuation of those non-marketed products. And as technologies,
institutions, policy experiences and market sizes change in the process of
development, so does the scope for being able to market some of those previously
unmarketable products that were jointly produced with each sector’s main products
Every productive sector generates both marketed and non-marketed products. Some of
those non-marketed products are considered more desirable than others, and some are
considered undesirable. Anderson (2000) raises important policy questions related to
agriculture’s non-market contributions. Is agricultural production a net contributor in
terms of externalities and public goods? And is it more of a net contributor than other
sectors and especially the sectors that would expand if agricultural supports were to
shrink? Demonstrating that is an almost impossible task, given the difficulties in
obtaining estimates of society’s ever-changing (a) evaluation of the myriad
externalities and public goods generated by the economy’s various sectors and (b)
marginal costs of their provision.
All market failures associated with agriculture in the developed countries are
replicated in the developing ones, but the incapacity to intervene effectively to
regulate is even more evident and more problematic.
Gardner (2001) points out several of the long standing controversial issues in the
interlinked causes and effects of economic growth of agriculture that may be
important for ROA policy development. The list includes: (a) understanding the
sources of improvements in technology; (b) explaining the adoption of new
technology; (c) understanding the reasons for changes in the economic organization of
farm enterprises; (d) the economic consequences of technological and organizational
change, particularly the effects on agricultural productivity, farm size, and income
distribution; (e) the role of market integration between the farm and nonfarm
economies, particularly with respect to labour markets -- both migration off farms and
nonfarm sources of income for people who remain on farms; and (f) the role of
government, and more generally, economic incentives, in fostering the creation and
adoption of new technology and the development of changes in the economic
organization of agriculture (Gardner, 2001).
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Table 1 Share of Agriculture and agribusiness in GDP
Country
Philippines
India
Malaysia
Indonesia
Thailand
Republic of Korea
Chile
Argentina
Brazil
Mexico
United States
Source: Pryor and Holt, 1999).
Share of
Share of GDP
manufacturing
______________________________________
and services in
Agriculture
AgricultureAll
agribusiness
related
agribusiness
manufacturing
and services
……………………..percent……………..……..
22
38
60
70
31
45
76
60
17
26
43
73
19
29
48
63
12
37
49
79
7
22
29
82
7
25
32
79
6
20
26
73
8
18
26
79
7
19
26
75
2
4
8
91
Agriculture’s Economic Roles
Food Security
Environmental goods
and services
Direct Use Contributions
Joint Products
Externalities
Traditional
Food
Surplus labour
Exports
Capital/savings transfers
Consumer markets
Indirect Use Contributions
Public Goods
Non traditional
Produce agroindustrial goods
Produce agroindustrial services
Produce agroindustrial jobs
Provide land for urban expansion
Provide safe food
Tourism
Provide safe food
Tourism
Provide safe food
More productive work force
Welfare system substitute
Productivity growth
Rural viability
Recreational amenities
Cultural and heritage values
Landscape values
Equity contribution
Enhanced learning capacity
Provide community space
Harbour unique ecosystems
Increasingly less tangible values to society; and increasingly more difficult to measure contributions
CIES DISCUSSION PAPER SERIES
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For a full list of CIES publications, visit our Web site at http://www.adelaide.edu.au/cies/
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1989 to 1999 plus updates.
0118 Stringer, Randy, "How important are the 'non-traditional' economic roles agriculture
in development?" April 2001.
0117 Bird, Graham, and Ramkishen S. Rajan, "Economic Globalization: How Far and
How Much Further?" April 2001. (Forthcoming in World Economics, 2001.)
0116 Damania, Richard, "Environmental Controls with Corrupt Bureaucrats," April 2001.
0115 Whitley, John, "The Gains and Losses from Agricultural Concentration," April 2001.
0114 Damania, Richard, and E. Barbier, "Lobbying, Trade and Renewable Resource
Harvesting," April 2001.
0113 Anderson, Kym, " Economy-wide dimensions of trade policy and reform," April
2001. (Forthcoming in a Handbook on Developing Countries and the Next Round of
WTO Negotiations, World Bank, April 2001.)
0112 Tyers, Rod, "European Unemployment and the Asian Emergence: Insights from the
Elemental Trade Model," March 2001. (Forthcoming in The World Economy, Vol.
24, 2001.)
0111 Harris, Richard G., "The New Economy and the Exchange Rate Regime," March
2001.
0110 Harris, Richard G., "Is there a Case for Exchange Rate Induced Productivity
Changes?", March 2001.
0109 Harris, Richard G., "The New Economy, Globalization and Regional Trade
Agreements", March 2001.
0108 Rajan, Ramkishen S., "Economic Globalization and Asia: Trade, Finance and
Taxation", March 2001. (Forthcoming in ASEAN Economic Bulletin, 18(1), April
2001.)
0107 Chang, Chang Li Lin, Ramkishen S. Rajan, "The Economics and Politics of
Monetary Regionalism in Asia", March 2001. (Forthcoming in ASEAN Economic
Bulletin, 18(1), April 2001.)
0106 Pomfret, Richard, "Reintegration of Formerly Centrally Planned Economies into the
Global Trading System", February 2001. (Forthcoming in ASEAN Economic
Bulletin, 18(1), April 2001).
0105 Manzano, George, "Is there any Value-added in the ASEAN Surveillance Process?"
February 2001. (Forthcoming in ASEAN Economic Bulletin, 18(1), April 2001).
0104 Anderson, Kym, "Globalization, WTO and ASEAN", February 2001. (Forthcoming in
ASEAN Economic Bulletin, 18(1): 12-23, April 2001).
0103 Schamel, Günter and Kym Anderson, "Wine Quality and Regional Reputation:
Hedonic Prices for Australia and New Zealand", January 2001. (Paper presented at
the Annual Conference of the Australian Agricultural and Resource Economics
Society, Adelaide, 23-25 January 2001.)
0102 Wittwer, Glyn, Nick Berger and Kym Anderson, "Modelling the World Wine Market
to 2005: Impacts of Structural and Policy Changes", January 2001. (Paper
presented at the Annual Conference of the Australian Agricultural and Resource
Economics Society, Adelaide, 23-25 January 2001.)
0101 Anderson, Kym, "Where in the World is the Wine Industry Going?" January 2001.
(Opening Plenary Paper for the Annual Conference of the Australian Agricultural
and Resource Economics Society, Adelaide, 23-25 January 2001.)
0050 Allsopp, Louise, "A Model to Explain the Duration of a Currency Crisis", December
2000.(Forthcoming in International Journal of Finance and Economics)
0049 Anderson, Kym, "Australia in the International Economy", December 2000.
(Forthcoming as Ch. 11 in Creating an Environment for Australia's Growth, edited
by P.J. Lloyd, J. Nieuwenhuysen and M. Mead, Cambridge and Sydney: Cambridge
University Press, 2001.)
0048 Allsopp, Louise, " Common Knowledge and the Value of Defending a Fixed
Exchange Rate", December 2000.
0047 Damania, Richard, Per G. Fredriksson and John A. List, "Trade Liberalization,
Corruption and Environmental Policy Formation: Theory and Evidence", December
2000.
0046 Damania, Richard, "Trade and the Political Economy of Renewable Resource
Management", November 2000.
0045 Rajan, Ramkishen S., Rahul Sen and Reza Siregar, "Misalignment of the Baht,
Trade Imbalances and the Crisis in Thailand", November 2000.
0044 Rajan, Ramkishen S., and Graham Bird, "Financial Crises and the Composition of
International Capital Flows: Does FDI Guarantee Stability?", November 2000.
0043 Graham Bird and Ramkishen S. Rajan, "Recovery or Recession? Post-Devaluation
Output Performance: The Thai Experience", November 2000.
0042 Rajan, Ramkishen S. and Rahul Sen, "Hong Kong, Singapore and the East Asian
Crisis: How Important were Trade Spillovers?", November 2000.
0041 Li Lin, Chang and Ramkishen S. Rajan, "Regional Versus Multilateral Solutions to
Transboundary Environmental Problems: Insights from the Southeast Asian Haze",
October 2000. (Forthcoming in The World Economy, 2000.)
0040 Rajan, Ramkishen S., "Are Multinational Sales to Affiliates in High Tax Countries
Overpriced? A Simple Illustration", October 2000. (Forthcoming in Economia
Internazionale, 2000.)
0039 Ramkishen S. Rajan and Reza Siregar, "Private Capital Flows in East Asia: Boom,
Bust and Beyond", September 2000. (Forthcoming in Financial Markets and
Policies in East Asia, edited by G. de Brouwer, Routledge Press)
0038 Yao, Shunli, "US Permanent Normal Trade Relations with China: What is at Stake?
A Global CGE Analysis", September 2000.