Mellor model

SCHOOL OF ECONOMICS (DAVV)
MELLOR’S MODEL
Advance agriculture economics
tewani
[Pick the date]
Submitted to dr. sakharam mujalde sir submitted by :-lavina tewani

Stage # 1. Traditional Agriculture:
Mellor’s definition of traditional agriculture is much different from
given by Schultz. He does not define agriculture in the sense of
equilibrium. For him, traditional agriculture is a backward labour
intensive agriculture which uses only crude form of capital. It is not
simply a stagnant agriculture as is implied by Schultz’s definition.
According to Mellor, farm organisations in traditional agriculture,
though different in different countries because of difference in
physical, economic and social factors,
Common features of traditional agriculture.
 For instance, most of the farms are cultivated by the farmers
with their family labour. Even the capital is provided by the
farmer from his own source.
 The farms are generally small in size and the word force per
farm is higher on these farms. When compared with that in
high income countries. These features result in low

productivity and low income in these farms. So far as resource
allocation on these farms is concerned Mellor follows Schultz.
 According, to him resources are optimally allocated on these
farms.
 According to Mellor, land and labour constitute the major
inputs on these farms. The capital is in a very crude form. It is
direct embodiment of human labour and therefore, its
productivity is quite low.
 Declining income and productivity per unit of an input is a
common feature of this phase.
 Per capita productivity and income falls as more and more
labour is used to produce more output .
Law of diminishing returns to labour:
 The main input, applies in such agriculture. As land is limited
and so is the capital, additional labour force is the only source
of increasing income in such agriculture. However due to the
application of law of diminishing returns to labour, Per capita

productivity and income falls as more and more labour is used
to produce more output
 Mellor does admit that in traditional agriculture, some non-
traditional inputs like fertilizers have been used. But he points
out that their use has not added significantly to the output
mainly because other complementary inputs are not used
along with the fertilizers.
Mellor is of the view that there is much under employment in
traditional agriculture.
But this need not be due to the existence of zero value labour. This
is mainly because of uneven distribution of land in the society with
traditional agriculture. Mellor feels that while on the small farms,
under employment (or disguised unemployment) may exist due to
the existence of zero value labour, on larger farms,
underemployment exists due to another reason. According to
Mellor, the pattern of consumption in a traditional agricultural is
rather rigid of a rigid.
As, on larger farms, income is likely to be more than what is needed
to meet the requirements of a rigid consumption pattern, the

amount produced on such farms i.e. the amount of labour to be
used is not to be disguised.
For proving this point Mellor uses the following analytical tools:
1. The Production Possibility Curve:
For Mellor, this curve shows the relationship between total output on a given
farm and the amount of labour used to produce that output in other words it is
total productivity curve in value terms with labour as the independent
variable.
The total output in the curve, however, is not shown purely in terms of the
value of actual physical agricultural output. It is rather in terms of the value of
combination of agriculture output and the non-agricultural goods and services
that are exchanged for agricultural goods at each level of labour use. As the law
of diminishing returns starts applying to agricultural product from the very
beginning this curve progressively becomes flat as the amount of labour use
increases along x-axis.
Ultimately, the curve becomes parallel to X axis at a point, where the marginal
productivity of labour becomes equal to zero. This curvature of the production
possibility curve is valid for farms of all sizes. The only difference will be that
the production possibility curve will be higher for larger farm than for the
smaller farms though it will start from the origin in each case.

In diagram 1 curves A to G are production possibility curves. All of then start
from the origin C in the direction of CO. Axis CO shows man-time at C, it is
presumed that zero work is put in while leisure availed of is OC. At O, all man-
time has been used and there is no leisure left.
The other tool that Mellor uses to show that labour is underemployed on
larger farms is the iso-utility curve. It is just like an indifference curve (with O
as the origin) a curve that shows at each point, the same amount of satisfaction
from two commodities, one the goods and services and other the leisure
(opposite to work as measured from. If a farmer wants more of goods and
services, he will have to have so less of leisure, i.e., put in so much more work
that he gets the same amount of satisfaction. A curve showing all such
combinations of goods and services; on the one hand and leisure on the other
which give him the same satisfaction is called Iso-utility curve. The rigid
consumption pattern of the farmers affects the shape of the iso-utility curve as
drawn with O as the origin.
As each dose of additional goods and services have little utility due to rigid
consumption pattern, it will progressively exchange for a smaller amount of
leisure. In other words, each unit of leisure added (or work put it) will be
progressively exchanged with larger dose of goods and services.
The iso-utility curve, will thus be convex to O (from which leisure is measured
in the direction of Oc, the marginal rate of substitution between the two
commodities falling as is shown in diagram, (it may be noted that we can also

say that the iso-utility curve has been drawn with C as the origin in diagram I.
In that case of course we shall consider work put in and not the leisure as the
other commodity on better say, the discommodity in the combination).
2. Iso Utility Map:
Just as there is a set of indifference curves, there is also a set of iso utility
curves, each higher curve indicating a higher level of satisfaction as compared
with the one below it. If all such curves are drawn we get what is, called an iso-
utility map. Curves T to Z in diagram I show a part of the Iso-utility map. This
map is considered to the same for each farmer.
(i) Three Types Income levels:
Before we follow Mellor to find out the point of equilibrium of labour use on
large farms we may refer to the three types of incomes levels as distinguished
by Mellor. These are (a) level which ensures only the minimum food, clothing
shelter and other essentials for maintaining human life. OYo in the diagram
shows this level, (b) the culturally defined subsistence level. OY indicates this
level in the diagram.
According to Mellor, in a traditional agriculture. OY should indicate the
maximum level of income which a farmer can aspire for. Income level beyond
OY is deemed to be a non-traditional agriculture. It is a level which indicates
changing standard of living found in dynamic, non-traditional agricultural
societies.
(ii) Equilibrium Level of Labour use:

According to Mellor equilibrium level of labour use on such small farms as
ensure income level only upto OYo will be indicated by the point where
marginal productivity of labour becomes equal to zero. This is because all
efforts should be made by the farmers to get the maximum output from land.
Between OYo and OY, the equilibrium level of labour use will be determined at
the point where the satisfaction from output produced is the maximum. This
will be obviously a point where the given production possibility of a farm is
just tangent to one of the iso-utility curves.
The shape of the iso-utility curves and the production possibility curves are
such that according to Mellor, the equilibrium point will always be to the right
of the point where the marginal productivity of labour is equal to zero. In other
words, on such farms, there will be underemployment of labour even when the
marginal productivity of labour is positive and is more than zero.
The above diagram as given by Mellor, clearly shows that as the production
possibility curve moves upwards its tangency point with an iso- utility curve
move towards the rights at least up to the level of income defined as culturally
determined subsistence level the income level relevant for traditional
agriculture.
In the diagram production possibility curves A&B pertain to a subsistence or
below subsistence farm. It is only here that labour will be used up to a point
where its marginal productivity is equal to zero. From the above analysis.
Mellor further concludes that income in traditional agriculture can be

increased if more labour is used on the farms. This suggests redistribution of
land and taxation on agricultural incomes as the methods to promote the use
of more labour on the larger farms.
Backward sloping supply curve in traditional agriculture:
Mellor is of the view that supply curve for agriculture production in traditional
agriculture is backward sloping. His argument is as follows: when prices of
agricultural products are raised, two things happen. On the one hand, there is
a temptation to produce more, i.e. one likes to substitute labour for leisure.
This is what he calls positive substitution effect of rise in prices of agriculture
production on the one hand, the pattern of consumption in a traditional
society is tradition bound is rigid. Now when the prices rise, income of the
farmers rises. But the consumption pattern is rigid.
So there is a temptation to produce less by using less labour in production.
This is negative income effect of rise in prices of agricultural products.
According to Mellor, in a traditional agriculture, negative income effect is
stronger then the positive substitution effect, so far as the labour use &
therefore output is concerned. The supply therefore falls when prices of
agriculture products increase.
In the same Vein Mellor feels that whether zero value labour exists in
traditional agriculture or not, withdraw of labour from the agricultural sector
will result in the fall in agriculture output.

This is because withdrawal of labour will give a higher per capital income to
the people who are still left in the agricultural sector. As their income rises, the
phenomenon of backward sloping supply curve-relevant for the traditional
agriculture will apply and the total agricultural output will fall.
Mellor is of the view that so long as agriculture is traditional in character it
cannot help the non-farm sector through flow of funds. Capital formation in
traditional agriculture is very low. It must be taken out of its traditional if it is
to help in the development of then on-farm sector. And it cannot move out of
the traditional rut by itself. For this the Government has to devise a policy
aimed at the “complex but potential productivity process of
technological change”.
“It is a technologically stagnant stage in which production is
increased largely through slowly increased application of
traditional forms of land, labour and capital.”
The increase in output takes place through expansion of all inputs or through
increased input of the already abundant low productivity resources.
Policy in a Traditional Agriculture:
 When we find agriculture in the traditional stage, the obvious objective
is to push it into the 2nd stage. This is because it is mainly in the 2nd

stage that agriculture starts helping the industrial development of the
company.
 Agricultural production increase in the traditional phase through
increase in the area under cultivation.
 The increase in population was not sufficient to consume away the extra
production. The extra production helped the industrial sector which
helped the agricultural sector in term through providing improved
agriculture inputs.
The development of agriculture necessitates more investment. More
investment means more saving in the agricultural sector. If the population
continues to grow, the total savings in the agricultural sector may not increase
even when there is some initial rise in production per acre. The extra output
may be consumed by the growing population.
In-fact, even when there is an increase in per capita productivity in agriculture
in an under developed economy,
this may not mean any increase in per capita saving as the income elasticity of
demand in the agricultural economies is very high and whole of the extra
output may be domestically consumed.
A backward economy, in-fact, needs special measures for controlling
population because in the initial stages of development, the economy generally
finds itself in a vicious circle of population growth:

poverty living to more population; more population leading to poverty and so
own. It is only with great effort that the economy is able to get out of this rut.
Not only does the growing population hinder the growth of saving in the
agricultural sector, it also leads to sub-division and fragmentation of holdings
making the use of certain improved inputs, even if these can be somehow
procured from outside, more difficult. This is especially the case with many of
the present day underdeveloped economies where it has become difficult to
extend the land frontiers.

Stage # 2. Technologically Dynamics
Agriculture-Low Capital Technology:
According to Mellor, only when agriculture moves into this phase from the
traditional phase that it can provide resources to the non- farm sector to grow.
This phase involves the use of new inputs with high marginal productivity.
The new inputs do not involve the use of too much of capital, and are
complementary rather than competitive with labour. The traditional inputs are
also used in this phase. These inputs increase the productivity per acre.
Fertilizers, new seeds, power are some of these inputs.
“a complex of technological changes substantially increases the efficiency of
agricultural processes and raises the rate of increase of agricultural
production………. The critical characteristics of stage II, as compared with
stage I is the constant generation and application of technology which is
facilitated by a complex institutional framework…”

This phase according to Mellor has the following important
features:
(a) Agriculture still occupies the most important position in the economy in
terms of income generation
(b) Demand for agricultural products continues to grow due to increasing
population.
(c) Small Size of the farms due to slow growth of the non-farm sector and
(d) Agriculture does not use machinery due to availability of cheap labour.
Necessary steps to move traditional agriculture into 2nd phase
(i) Institutional changes for creating necessary incentives for
development. Mellor is firmly of the view that institutional changes like
land and reforms are necessary for giving incentives to the cultivators
to produce more. Technological changes will follow only the
institutional reforms.
(ii) Encouragement of research. Mellor emphasizes scientific
research at regional level. Sometimes, the research findings prove
ineffective because these are not based upon regional variations.
(iii) Supply of new and improved physical inputs. This is one of
the most important measures that Mellor suggests for pushing a
traditional agriculture into the 2nd phase of development.

 These inputs include new crop varieties, improved breeds of livestock,
inorganic fertilizers, insecticides etc., Organizations for their proper
distribution need to be set up,
 Mellor feels, that some of these inputs may have to be imported from
outside as their production in the country itself may be rather costly.
 Infrastructure necessary for the development and production of these
inputs is to be developed. Efforts have to be made to made them
acceptable to the farmers.
(iv) Setting up of institutions to services agricultural production.
There are many supporting services which have to be developed if the
agricultural production proper is to increase. The institution includes those
distributing modern inputs, those facilitating marketing of agricultural
products those engaged in processing agriculture crops.
(v) Development of communication system to help farmers make
choices. Extension services have to be developed to enable farmer make
choices out of various alternative inputs and practices which go on
appearing, in a dynamic agriculture.
With regard to all these steps Mellor points out that:-
 In the beginning large return technical innovations may be adopted
even when some of these steps are not taken.

 However, if the 2nd phase of agricultural development is to be
widespread, all those services are to be provided in a package.
 He further points out that all these steps have to be taken by the
Government itself. Private individuals are not in position to provide
this package to the farmers. In this regards,
 He further points on that regional diagnostic study to be conducted to
ensure suitability of the package.
 Mellor also emphasizes the development of a broad range of
educational institutions in order to ensure that the capacity of the
farmer to grasp the new technicalities is increased. Two important
points may be noted in Mellor’s steps for pushing a traditional
agriculture into the 2nd phase. The first is in consumption to a
suggestion made by Schultz. It is that Mellor is not against command
approach.
 He expects much from the Government to push traditional agriculture
into a non-traditional phase. Secondly, in this phase,
 The inputs suggested to be used are low capital intensive and are
complementary to labour. There is no displacement of labour.

Once the agriculture of an economy has entered the 2nd stage its
development, the objective state policy should be:
(a) To see that the various inputs which are responsible for pushing
agriculture in the second stage of development are progressively utilized
by all farmers and also continue to be made available to the farmers at
reasonable rates, (this will necessitate a large-scale import for these
input from outside through the export of agricultural products and also
industrial products after the industrial sector is developed or the setting
up of industries producing these inputs in the country itself);
(b) To popularize these inputs through demonstration, propaganda, etc.
(c) Supply of credit to those agriculturists, e.g., small farmers, who do
not have sufficient finances to purchase these inputs.
Phase # 3. Technological Dynamic
Agriculture-High Capital Technology:

when agriculture gets going in the 2nd phase, it will provide funds for the non-
farm sector to develop.
And After sometime both the sector start developing with mutual help and
agriculture will automatically enter the Third phase of development.
Mellor has not discussed this phase in detail as he was mainly interested, like
Schultz in transformation of a backward agriculture. However, he point out
that
Here heavy machinery will be used in agriculture, labour will be available for
absorption in developing non-farm sector.
The heavy machinery will be developed in the expanding non-farm sector.
Size of the farm will increase due to the transfer of tax from the farm sector to
the non-farm sector High level of investment in machinery in agriculture
becomes possible because of two factors
(1) Capital formation in the developed agricultural sector grows further
and
(2) The developed non-farm sector begins to use its own savings for
investment and therefore docs not need any capital from the
agricultural sector.
This is the stage when agriculture has much of its relative importance in the
generation of the National Income.

Agriculture of various developed countries is included in this stage.
Government’s role in different stages is quite important. In nature, of course,
it is different.
Government and Agriculture:
If the process of development, as visualized when the agriculture as in stage II,
continues, a time will come when both the agricultural sector as well as the
industrial sector are highly developed through interdependence. This is
agriculture in Phase III.
Such agriculture has two major problems:
(1) The farm problem :-
1) briefly refers to the phenomenon of poverty among plenty in the
agriculture sector
2) Agricultural production, in physical terms, goes on increasing as
its development proceeds
3) The income as a result of this increased production does not
increase proportionately due to a low income elasticity of
demand for agricultural commodities in developed economies.
Per capita income of the farmers thus falls in relation to that of
the people in the non-agricultural sectors.
(2) The instability of agriculture.

1) Instability of agriculture becomes more prominent in stage III
because much of it occurs due to the developed nature of the
industrial sector.
2) A developed industrial, as we know suffers from the malady of
booms and depressions.
3) As the industrial sector, at this stage of economic development, is
very closely connected with the agricultural sector through
purchase inputs from the agricultural sector and through sale of
its products to the agricultural sector, these booms and
depressions are transmitted to the agricultural sector also. The
instability of agriculture thus, becomes more pronounced in this
stage.
We can thus say that, in this stage, the basic problem is not to decide about
measures needed for developing agricultural. It is rather how to tackle some
difficulties created by economic development especially those emanating from
the ‘farm problem’ or the ‘instability of agriculture’.
Some of the policy measures suggested to be adopted for reducing
instability
(2) buffer stock schemes
(3) price supports,

(4) direct income transfer measures
(5) control of fluctuations in the non-agricultural sector,
(6) Control over production,
(7) transfer of labour from the agricultural sector to non-agriculture
sector,
(8) Encouragement of exports of agricultural products to other
countries and control over imports of agricultural products into the
country are some of the measures to solve the ‘farm problem’.
Conclusion:
It may be noted that the preceding paragraphs only indicate the priorities that
should be attached to various policy measures for agriculture in different
stages of development. These are, however, not the only measures relevant for
agriculture in a particular stage.
All measures of stage I, for example, are relevant for stage II also. Population
control is desirable in stage III also. Similarly, some measures, particularly
those pertaining to regional inequalities may be needed in stage III also if the
development of agriculture has not been a balanced one.
The fact of the matter is that the Government has to ensure that besides taking
certain steps on priority basis in a particular stage of agricultural

development, the achievements of the policy measures followed in an earlier
stage are not all, lost.

Mellor model

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