Download Different Stages of Development: Sectoral Perspective

DIFFERENT STAGES OF
DEVELOPMENT: SECTORAL
PERSPECTIVE
Agricultural sector
This week
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Look at three main sectors
Agriculture
Industry
Services ( financial sector)
Different stages of development
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Reading page 39
Growing economy: change in proportion
Look at share of main sectors in output and
employment
Usual pattern : Agriculture Industry Service
Industrialization and post industrialization
Industrialization
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As incomes grow demand for food reaches its
natural limit: industrial goods
New farm techniques and machinery: relatively less
expensive
Less labor required
Industrial sector starts to take over a larger
proportion in GDP
Post industrialization
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As incomes further rise : People demand services
As compared to agriculture and industry, labor is
relatively difficult to replace by machines
Employment and share of GDP of services increases
Most high income countries: post industrializing
Low income countries : industrializing
Agriculture: Main readings
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Agricultural Development : Chapter 9, page 43
Agriculture pricing policy: Chapter 10, page 58
Introduction
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Important features of UDC’s:
 Agriculture
is the pre-dominant sector
 Agriculture development forms part of an overall
development plan
 Rate of economic growth is largely a function of the
rate of growth of agriculture (contributes nearly 50%
of their GDP)
 High gr rate at macro level has always been associated
with a high gr rate in agricultural productivity
Importance of agricultural
development
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In 37 LIC’s, agriculture
accounts for about 50% of their GDP
 Absorbs nearly 3/4th of their total labor force
 Contributes substantially to their exports
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In Pakistan:
Backbone of the economy
 1949-50: 53% of GNP
2002-03: 24% (largest)
 Absorbs nearly 48.4% of employed labor force, and 70% if
indirect employment is taken into account
 Largest source of export earnings (rice, raw cotton and
cotton based products)
 Industry is based on agri raw materials
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Role of agricultural surplus in
development
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Economic surplus: Excess of production over
consumption, utilisation for capital formation
Our main sector is agriculture
How to increase surplus?
Adam Smiths Natural Order of
Development
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In economic development, priority should be given
to agriculture to make it sustainable
Industrial development should succeed rather than
precede agricultural development
U.S.A: agri growth provided ignition and was not
sidelined, Japan, China
Poverty eradication
Historical Perspective
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Agri assigned a low priority in the 1st Plan (1955 –
60):
 11%
of total investable funds with a 2.5% gr target,
compared to 28% for industry with a 12% gr target
 Agri growth rates not met by the end of the plan
period =< stagnant sector
Historical Perspective
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2nd Plan (1960 – 65):
Growth rate of 3.4% realized in agri ,other crucial targets
e.g exports.
 Agri assigned 24% of total funds compared to 26% to
industry
 But priorities in industry were not right
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3rd Plan:
Target of 5% growth rate
 Allocation: 30% , subsidies on inputs
 Setbacks: ’65 war, suspension of US aid, popular agitation
+ political uncertainties, failed land reforms
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4th Plan (1970 – 75):
Became redundant after the split up of the country
 Crop productivity either stagnated or started a downward
slide
 Reasons: seed deterioration, decline in water use efficiency,
low level of input use, water-logging and salinity
 Land reforms
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1977 – 87: partial recovery ; became almost selfsufficient in wheat
Unsustainable growth because of persistent bad
weather
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7th Plan (1988 – 93):
 Inconsistent
growth rates during the plan period
 1988-89: 6.9% gr rate
89-90: 3.03%
 1991-92: 9.5%
92-93: -5.28%
 Average growth rate during the Plan: 3.8%
 Negative gr rates in 92-93 due to reverses in the
production of major crops
 Cotton, sugarcane, rice
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8th Plan (1993 – 98):
Wide fluctuations due to an natural/climatic conditions
 Prime Ministers task force during Benazirs government as
well as Nawaz Sharifs government gave incentives
 Agri policy geared towards productivity gains through
efficient use of key inputs such as irrigation, seeds,
fertilizers, plant protection etc.
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Non-Plan period (1999 – 2001): Negative growth
due to drought
Status quo?
Way forward?
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Explore the possibility of more land reforms: skewed
ownerships, wastage of land, lack of investment,
feudalism
Explore the possibility of small farms: seed, water ,
fertilizer package
Improve the provision of physical inputs:
irrigation(rice and irrigation),improved seeds, plant
protection, mechanization
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Improve the economic environment: minimum prices
to growers for their produce, simplifying loan and
credit schemes, storages
Promote Research and Education
More Land Reforms
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Highly skewed land : retarding factor in agriculture
Land ownership structure has not changed despite
land reforms of ’59 and ’72
Land reforms largely neutralized
Land surrendered was largely barren
Wastage of land
Feudalism
Lack of investment
Additional land reforms do not seem politically
possible
Possibility of Small Farms
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Urgent need to fully exploit the considerable yield
potential of small farms
seed-water-fertilizer package
Success of this program linked to freeing of small
farmers from the bondage of big landlords
Tremendous scope of expanding productivity
The Provision of Physical Inputs
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Water Shortage
 Appear
at critical times, which particularly affect
productivity of rice and sugarcane
 Nearly 45% of water resources wasted annually in
transit
 Water availability can be increased by increasing
ground and surface water, and also through initiating
on-farm water management programs
The Provision of Physical Inputs
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Fertilizer:
 Key
input: plays an important role in raising
productivity
 Usage can be increased by subsidizing fertilizer and by
advancing credit to farmers
 Provide expert advice on proper and effective use of
fertilizers
The Provision of Physical Inputs
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Seeds:
research work to aim at evolving new HYV of seeds
 Need more seed processing plants
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Plant Protection Measures:
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Import, sale and dist of pesticides handed over to the
private sector in 1980.
The Provision of Physical Inputs
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Mechanization:
 Helps
overcome labor shortage at sowing and
harvesting season, and also does the job more quickly
 Need to locally manufacture tractors, threshers,
harvestors, reapers etc. Research should be undertaken
to evolve suitable machinery that is suited to local
conditions.
Improving the Economic Environment
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Improve price incentives, agricultural credit, marketing
and storing facilities etc.
Essential to formulate a liberal credit policy
Build additional storage capacity,so that procurement
plans are not adversely affected
Promote Research and Education
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Only 1/20th of 1% of GNP allocated for research in
agriculture
Research characterized by duplication of effort =>
wastage of resources
Research conducted by PARC has resulted in
production gains in cotton, wheat, maize, oilseed etc.,
leading to yield gains ranging between 25% to
100%
Acute shortage of research personnel
Pricing policy
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Govt’s intervene to stabilize prices of agricultural
goods to ensure a reasonable price to the consumer
and producers
Support Price? Procurement Price?
Motivations: to safeguard the interests of both
producers and consumers and moderate the impact
of excessive fluctuations in output.
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Agricultural price policy: ‘a policy of the
government whereby it acts to influence or
determine the prices of agricultural outputs and
inputs.’
Subsidized by government directly or indirectly
Importance and need
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To remove uncertainty
To increase agricultural production
Keynesian arguments
Lack of storage facilities
Stabilize the tempo of economic growth
Income disparities
To increase the standard of living
Objectives
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Stabilization of prices
Induce greater production
Supply of food to urban consumers at reasonable
prices
Generate public revenues
Price stabilization
Carried out through fixation of support prices
below which market prices are not allowed to fall
Buffer stocks: Over and underproduction
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Inducement for greater production
Direct and positive correlation between argi
prices and production
 Provide incentive to growers to bring more
acreage under cultivation of a crop to expand
production
 Time series data
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Reasonable food prices for urban
consumers
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Relatively a more organized and vocal pressure
group
Absolute necessity for the survival of a political
government
Generate Public revenues
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Wide margin between procurement prices at
which the government purchases the agricultural
commodity, and the price at which they are
exported
Augments efforts of resource mobilization
Agricultural output price policy in
Pakistan
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‘output price policy’ refers to the fixation of
procurement and support prices
Food and cash crops included in the policy account
for nearly 2/3rd of the annual cropped acreage
Early period characterized by the unwillingness of
the govt. to use the output policy to expand
production.
Agricultural output price policy in
Pakistan
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Resulted in frequent food shortages, esp. of wheat
Increase in price of wheat => rippling effect, thus
leading to an increase in the overall cost of living
Govt. concerned with stability of prices for urban
consumers rather than expanding frontiers of food
prod during the early years.
Agricultural output price policy in
Pakistan
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Established a direct and +ve relation between
support prices and output
Next four decades: govt. successfully uses output
price policy to increase the production of the 3
major crops of Pakistan
Price fixation process
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APComm responsible for reviewing and
recommending support/procurement prices
Recommendations forwarded to the Federal
Ministry of Food, Agriculture and Cooperatives.
Final approval accorded by the federal cabinet
after discussing the proposals.
Price Fixation Criteria
APComm takes into account the following:
 Cost of Production
 Parity index between competing crops
 Import Parity Price
 Export Parity Price
 Buffer Stocks
Impact on Income Distribution
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Benefits big landlords at the expense of small
farmers
Support price policy serves to widen the gap in
productivity between the large and small farmers
Further worsens income inequalities between the rural
rich and the poor
Input price policy also favors big landlords => easier
access to subsidized inputs such as seeds, fertilizer,
machinery etc.
Input Price Policy
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Refers to government subsidies given on agricultural
inputs such as fertilizers, improved seeds, pesticides,
tubewells, electricity and agricultural machinery.
Objectives?
Superior to high output price policy, as even small
farmers can benefit from it
Input Price Policy
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Subsidization of technology ensures its speedy
adoption
Drawbacks?
 Cost
of inputs is only a small part of the total cost of
production
 Low input price may lead to unwanted substitutions (e.g
chem fertilizers instead of organic manure, wastage of
water)
Input Price Policy
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Subsidy on inputs should only be temporary
Should not be continued indefinitely
Objective: help farmers adopt new technology and
expand production and income
Input price policy in Pakistan
 Explicit
subsidy: covers the difference between the
real cost and the subsidized rate at which the input
is supplied to the cultivator (e.g fertilizer, pesticides)
 Implicit subsidy: concealed in concessional prices
charged by the govt. for the provision of certain
inputs, such as water rate, credit, electricity
Input price policy in Pakistan
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Subsidies can also be classified from the
budgetary point of view:
 Current
subsidies: financed from revenue budget and
are given on agri products used for consumption
purposes, e.g wheat, sugar, edible oils etc
 Development subsidies are financed from
development budget and are given on agri products
used for dev purposes, e.g. tubewells, fertilizers,
pesticides.