Agricultural Systems and Agricultural Systems and Their DeterminantsTheir Determinants

Dr. George NortonAgricultural and

Applied EconomicsVirginia Tech

Copyright 2009

AAEC 3204AAEC 3204

Objectives Objectives

1. Identify determinants of agricultural 1. Identify determinants of agricultural systems systems

2. Explore various types of farming 2. Explore various types of farming systems, including examples from systems, including examples from China and India China and India

3. Consider factors that cause changes 3. Consider factors that cause changes in farming systems over timein farming systems over time

Determinants of Farming Systems AnywhereDeterminants of Farming Systems Anywhere

P re c ip ita tion

E vap o ra tion

T e m p e ra tu re

C lim a te

T o po g rap hy

S o il s tru c tu re

S o il fe rt ility

L and

Irrig a tion

D ra in a ge

W a te r Co n tro l

B u ild in gs

M a ch in e ry

T o o ls

C a p ita l

D is tan ce to m a rke t

P h ys ica l

D ise a ses

In se c ts

W e e ds

P e s ts

C ro p sp e c ies

L ive s to ck sp e c ies

B io lo g ica l

T e ch n ica l

C o m m u n ica tion

S to ra ge

T ra nsp o rta tion

M a rke tin g S ys tem

S o c ia l

C u ltu ra l

H is to rica l

N o rm s a n d b e lie fs

P o p u la tion d en s ity

M a rke t o pp o rtun it ies

P rice p o licy C re d it p o licy

L a nd ten u re sys tem In p u t su pp ly po licy

T ra d e p o licy M a c ro eco n o m ic p o licy

P o lit ica l fa c to rs

O ff-fa rm e m plo ym e n t o p po rtun it ies

E xog e no u s to fa rm

F a m ily la b or

M a n ag e m e n t a b ility

E d uca tio n a n d kn ow led ge

G o a ls

E n do ge n ou s to fa rm

In s titu tio na l an d h um an

Classification of Farming SystemsClassification of Farming Systems

Examples of farming systemsExamples of farming systems

Examples of farming systemsExamples of farming systems

Planting in GhanaPlanting in Ghana

Weeding in GhanaWeeding in Ghana

Feeding goats in MaliFeeding goats in Mali

Intensive vegetables and poultry in Intensive vegetables and poultry in India and BangladeshIndia and Bangladesh

Bangladesh Magic TrapBangladesh Magic Trap

Ecuador Potato – Pasture SystemEcuador Potato – Pasture System

Objectives todayObjectives today

1. Examine changes in agricultural 1. Examine changes in agricultural systems in large developing systems in large developing countriescountries• ChinaChina• IndiaIndia• BrazilBrazil

2. Consider determinants of the changes2. Consider determinants of the changes

Major factors affecting change in Major factors affecting change in agricultural systems over timeagricultural systems over time

• Population and income growthPopulation and income growth• Changes in relative endowments of Changes in relative endowments of

land and laborland and labor• New technologiesNew technologies• Changes in political systemChanges in political system

Reforms in India and ChinaReforms in India and China• Both India and China had lower per Both India and China had lower per

capita income than sub-Saharan African capita income than sub-Saharan African countries in the 1970s, but have countries in the 1970s, but have outpaced them greatly since then.outpaced them greatly since then.

• Chinese agriculture has grown more Chinese agriculture has grown more rapidly than India. Why? rapidly than India. Why?

China liberalized its institutions in China liberalized its institutions in agriculture first, while India focused agriculture first, while India focused more on Macro policies more on Macro policies

Indian reformsIndian reforms

o Green revolution in seventies with Green revolution in seventies with productivity increases slowing by the productivity increases slowing by the eightieseighties

o Macroeconomic reforms in early Macroeconomic reforms in early ninetiesnineties

o More recent agricultural sector and More recent agricultural sector and trade reforms (still a ways to go)trade reforms (still a ways to go)

o Investment in research increasingInvestment in research increasing

IndiaIndia

Chinese AgricultureChinese Agriculture

• ½ the cropland of the United States½ the cropland of the United States

• ¾ acre per Chinese farm worker compared ¾ acre per Chinese farm worker compared to 120 acres in the United Statesto 120 acres in the United States

• 800 million farmers in China compared to 800 million farmers in China compared to about 7 million in the United Statesabout 7 million in the United States

• United States uses substantially more United States uses substantially more machinerymachinery

China has been changingChina has been changing

What Changed in Chinese What Changed in Chinese agriculture?agriculture?

1. Institutions (but what institutions?)1. Institutions (but what institutions?) 2. Technologies2. Technologies

Which do you believe was more Which do you believe was more important in spurring growth, important in spurring growth, institutions or technologies?institutions or technologies?

Types of Chinese farmsTypes of Chinese farms

1)1) Communes – Major reforms began in 1979: Communes – Major reforms began in 1979: Households within communes were Households within communes were assigned individual pieces of land. These assigned individual pieces of land. These individual pieces often organized into individual pieces often organized into cooperatives.cooperatives.

2)2) State farms (very small percent of total)State farms (very small percent of total)3)3) Individual farms (significant share of the Individual farms (significant share of the

farms with land leased from the farms with land leased from the government).government).Almost all farms now run under a “contract Almost all farms now run under a “contract responsibility system” This system was in responsibility system” This system was in place by 1985, but still tinkering with the place by 1985, but still tinkering with the leasing system leasing system

ChinaChina

ChinaChina

Economies in transition: Economies in transition: Effects on Farming systemsEffects on Farming systems

Why has China’s (much) slower Why has China’s (much) slower political transition allowed agricultural political transition allowed agricultural productivity to increase more rapidly productivity to increase more rapidly than the former Soviet Union’s more than the former Soviet Union’s more complete but rapid political transition?complete but rapid political transition?• Property rights through contract Property rights through contract

responsibility systemresponsibility system• Freeing up of markets and secure Freeing up of markets and secure

institutions (including wholesale and retail institutions (including wholesale and retail marketing institutions) marketing institutions)

The importance of the rural non-The importance of the rural non-farm sectorfarm sector

Extremely important when an Extremely important when an agricultural sector has is many small agricultural sector has is many small farmsfarms• Input suppliers, machinery repair shops, Input suppliers, machinery repair shops,

consumer goods, and many other small consumer goods, and many other small industries absorbed workers and industries absorbed workers and spurred growthspurred growth

What institutions are necessary for What institutions are necessary for agricultural growth to occur?agricultural growth to occur?

1. Property rights1. Property rights 2. Rule of law – ability to enforce 2. Rule of law – ability to enforce

contracts and rules to maintain contracts and rules to maintain market mechanism market mechanism

3. Financial 3. Financial 4. Insurance4. Insurance 5. Input supply and marketing5. Input supply and marketing

What about Brazil?What about Brazil?

o Dualist structure in agricultureDualist structure in agricultureo Rapid growth in large scale agriculture Rapid growth in large scale agriculture o One of the few countries still bringing One of the few countries still bringing

in large new tracts of land in large new tracts of land o Investing in agricultural researchInvesting in agricultural researcho Large exporter and potential to be Large exporter and potential to be

biggerbiggero Environmental issues Environmental issues

ConclusionsConclusions

• Farmers are rational and relatively Farmers are rational and relatively efficient efficient

• Traditional and all farming systems Traditional and all farming systems are inevitably changing are inevitably changing

• Many technical and institutional Many technical and institutional factors are driving these changesfactors are driving these changes

• As systems such as those in China, As systems such as those in China, India, and Brazil change, the effects India, and Brazil change, the effects spill over to the rest of the world spill over to the rest of the world