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Rural Incomes in the Context of Structural and Agricultural Transformation

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Dr. David Dawe, FAO Senior Economist, Bangkok, Thailand
Presented at the ReSAKSS-Asia conference “Agriculture and Rural Transformation in Asia: Past Experiences and Future Opportunities”. An international conference jointly organized by ReSAKSS-Asia, IFPRI, TDRI, and TVSEP project of Leibniz Universit Hannover with support from USAID and Deutsche Forschungsgemeinschaft (DFG) at the Dusit Thani Hotel, Bangkok, Thailand December 12–14, 2017.

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Rural Incomes in the Context of Structural and Agricultural Transformation

  1. 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. 2. How to make rural people prosperous? • Migration to urban areas • Diversify to rural nonfarm income • Higher labor productivity in farming
  3. 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. 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. 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. 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. 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. 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. 9. Rural wages Average annual growth in agricultural real wages, early 2000s to early 2010s Source: Wiggins and Keats (2015)
  10. 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. 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. 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. 13. Crop area harvested in China, 1976-2014 More valuable outputs Source of raw data: FAO (2017)
  14. 14. Crop area harvested in Malaysia, 1961-2014 More valuable outputs Source of raw data: FAO (2017)
  15. 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. 16. Efficiency: International trade Net trade per capita, 1961-2014, Viet Nam Source of raw data: FAO (2017)
  17. 17. International trade Net trade per capita, 1961-2014, Indonesia Source of raw data: FAO (2017)
  18. 18. Trends in farm size (SE Asia) National average farm size over time
  19. 19. Trends in farm size (South Asia) National average farm size over time
  20. 20. Trends in farm size (East Asia) National average farm size over time
  21. 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. 22. Land is scarce in Asia Agricultural area per capita Source of raw data: FAO (2017)
  23. 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. 24. What is the optimal farm size? Costs of rice production by farm size, Republic of Korea, 2015 Source: Government statistics
  25. 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. 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. 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. 28. Regional Office for Asia and the Pacific Bangkok, Thailand Thank you for your kind attention

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