1.
Rural incomes in the context of
structural and agricultural
transformation
Japan, July 2016
David Dawe
Regional Strategy and Policy Advisor/Senior Economist
Food and Agriculture Organization
Regional Office for Asia and the Pacific

2.
How to make rural people prosperous?
• Migration to urban areas
• Diversify to rural nonfarm income
• Higher labor productivity in farming

3.
Who are the rural poor?
• In India, 87% of the rural poor are landless or marginal
farmers (operating less than one hectare)
• For the rural poor, there are a wide variety of main income
sources:
Source:
World Bank
(2016)

4.
Percentage of rural households who earn income from agriculture and non-agriculture
(based on data from Bangladesh, Nepal, Pakistan, Indonesia and Viet Nam)
Rural nonfarm income
Source: Davis et al (2017)

5.
Bangladesh
6%
Bangladesh
10%
Indonesia
35%
Indonesia
16%
Nepal
27%
Nepal
19%
Pakistan
37%
Pakistan
22%
Viet Nam
44%
Viet Nam
25%
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Percentage of rural households specialized in farming
Rural nonfarm income
Source: Davis et al (2017)

6.
Value-added per worker
Average annual growth in agricultural value added (VA) and
agricultural VA per worker (1990 – 2016)
Source of raw data: World Bank (2017)

7.
Higher labor productivity in farming
• Fewer inputs, especially labor (mechanization)
• More valuable outputs (diversification away from staple
foods)
• Innovations and comparative advantage (international trade,
institutional innovations to deal with declining farm size,
agricultural research)

8.
Higher labor productivity in farming
• Fewer inputs, especially labor (mechanization)
• More valuable outputs (diversification away from staple
foods)
• Innovations and comparative advantage (international trade,
institutional innovations to deal with declining farm size,
agricultural research)

9.
Rural wages
Average annual growth in agricultural real wages, early 2000s to
early 2010s
Source: Wiggins and Keats (2015)

10.
Labor use (including family labor) in rice cultivation, key rice production areas
Fewer inputs, especially labor
Source of raw data: Moya et al (2004) and Bordey et al (2014)

11.
Number of holdings using farm mechanization in India
Mechanization
2.89
7.95
25.89
52.84
31.28
61.13
0
10
20
30
40
50
60
70
2006-07 2011-12
MillionMillionMillionMillion
Power tillers Diesel and Electric Pumpset Tractors*
Source: Gulati, Saini, Manchanda (2017)

12.
Higher labor productivity in farming
• Fewer inputs, especially labor (mechanization)
• More valuable outputs (diversification away from staple
foods)
• Innovations and comparative advantage (international trade,
institutional innovations to deal with declining farm size,
agricultural research)

13.
Crop area harvested in China, 1976-2014
More valuable outputs
Source of raw data: FAO (2017)

14.
Crop area harvested in Malaysia, 1961-2014
More valuable outputs
Source of raw data: FAO (2017)

15.
Higher labor productivity in farming
• Fewer inputs, especially labor (mechanization)
• More valuable outputs (diversification away from staple
foods)
• Innovations and comparative advantage (international trade,
institutional innovations to deal with declining farm size,
agricultural research)

16.
Efficiency: International trade
Net trade per capita, 1961-2014, Viet Nam
Source of raw data: FAO (2017)

17.
International trade
Net trade per capita, 1961-2014, Indonesia
Source of raw data: FAO (2017)

18.
Trends in farm size (SE Asia)
National average farm size over time

19.
Trends in farm size (South Asia)
National average farm size over time

20.
Trends in farm size (East Asia)
National average farm size over time

21.
What is the optimal farm size?
• Emerging evidence that larger farms (but not large by
international standards) in Asia are either more productive
than smaller farms, or have closed the gap with small farms
(Foster and Rosenzweig 2017; Liu et al, 2014; Otsuka et al,
2016).

22.
Land is scarce in Asia
Agricultural area per capita
Source of raw data: FAO (2017)

23.
What is the optimal farm size?
• Emerging evidence that larger farms (but not large by
international standards) in Asia are either more productive
than smaller farms, or have closed the gap with small farms
(Foster and Rosenzweig 2017; Liu et al, 2014; Otsuka et al,
2016).
• Key issues for policymakers
– Implications for national food security: is increased productivity of
large farms due to lower input costs, higher yields or both?

24.
What is the optimal farm size?
Costs of rice production by farm size, Republic of Korea, 2015
Source: Government statistics

25.
What is the optimal farm size?
• Emerging evidence that larger farms (but not large by
international standards) in Asia are either more
productive/profitable than smaller farms, or have closed the
gap with small farms (Foster and Rosenzweig 2017; Liu et al,
2014; Otsuka et al, 2016).
• Key issues for policymakers
– Implications for national food security: are changing advantages of
large farms due to lower input costs, higher yields or both?
– Are (relative) advantages in profitability due to changes in crops or
products or due to greater efficiency of machines?
– How steep is the U?
• Does maximizing productivity generate a socially optimal
outcome given the lack of social protection?

26.
Will farm sizes increase in the region?
Institutional innovations to facilitate land consolidation
• Market-based
– Land transfer service centers in China (nearly one-third of rural HH
rent out their land)
• Government-driven with subsidies

27.
Will farm sizes increase in the region?
• If no, what types of institutional innovations can ensure that
the productivity losses of small farms are not too large?
– Increasing importance of knowledge-intensive technologies (KIT)
– Incentives of small farmers to adopt such KIT probably small
– Rentals of machinery, other services in order to save time (in light of
increased nonfarm income!) and money (in light of higher rural wages)
for small landowners

28.
Regional Office for Asia and the Pacific
Bangkok, Thailand
Thank you for
your kind
attention