By Bottema, J.W. Taco

On Thursday 27 March 2008, ESCAP released the 60th Economic and Social Survey covering Asia and the Pacific. It is certainly noteworthy that a survey covering the region has been in existence for 60 years. It is even more noteworthy because in 2008 the Survey features agriculture and its role in the alleviation of poverty. The last time the ESCAP Survey covered agriculture was in 1964. The conclusion of the current Survey confirms, by and large, the established opinions in the development and agriculture development communities. This article considers the major conclusions of the Survey and also provides some running comments and questions on the current dynamics of Asia's agriculture.

Throughout the region, agricultural growth is stagnating. Table 1 shows the progressive reduction in growth rates of agriculture vis-à-vis non-agriculture over the last 40 years. Currently agricultural growth is estimated at 1.7 per cent per annum while other sectors - industries and services - consistently have higher growth rates. This trend is a universal one; it is a reflection of structural transformation. The research question concerns the growing involvement of agriculture in the wider process of economic growth.

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Source: Christiaensen et al., 2006.

It is also well known that with economic growth the proportion of agriculture in GDP reduces. The key issue here is that through a process of underemployment, agriculture absorbs this proportion of labour resulting in very low labour productivity (Table 2). Currently labour productivity in the US reaches around US$ 40,000 per annum, the EU some US$ 12,000, followed closely by Malaysia at US$ 8,000. Thailand's agriculture labour productivity now reaches US$ 1,800 per annum, while the Philippines and Indonesia reach US$ 1,300 and US$ 1,100 respectively. China and India are at US$ 800 and US$ 700 per annum, Bangladesh and Cambodia realize US$ 400 and US$ 300 respectively.


Source: ILO, 2007.

The message of these simple statistics is very clear. The global gaps in labour productivity are huge. It is very important to appreciate that the process of growth in labour productivity in the US took some 200 years. In Asia recent trends in growth of labour productivity are positive for China, the Philippines, Myanmar and also Bangladesh; but these countries are still at very low productivity levels.

Land productivities in Asia (around US$ 1,050 per ha) are far higher than in the US (US$ 700 per ha), but still lower than in the EU, which tops the list at around US$ 1,375 per ha (Tables 3 and 4). Clearly, Asia is the big winner when it comes to pure growth over the last four decades. This largely reflects the impact of the Green Revolution, but by necessity, also expanding infrastructure among other things. In the Republic of Korea and China land productivity still shows a strong positive trend, in Japan it has levelled out, while in Indonesia and India trends are weakly positive. It needs to be remarked that especially when it comes to land productivity, one needs to apply caution if the data are of a high aggregation level. In Asia one expects huge differences between irrigated and non-irrigated land, not to mention climate variability. Nevertheless the figures divulge something which can be called the "Asian pathway" in agriculture development.


Source: FAO AGROSTAT Database, 2007.


Sources: Lee and Zepeda, 1997 and FAO AGROSTAT Database, 2007.

 

We all know that landholdings are highly fragmented in Asia, clearly the response has been and still is that land productivity increases, while labour productivity stagnates, or grows only marginally. The big question is where we are heading in Asia? Obviously more in-depth study is necessary. The question arises of an 'Asian labour and land productivity platform'. Follow-up research will need to be commodity-specific and really incorporate the cost side. But if one would venture an hypothesis it would have to be that land productivity still has growth options - especially at geographically favourable locations - while its growth effect on labour productivity may not necessarily be high.

The Malaysian performance is suggestive of the perception that such a platform does not have to be much lower - in labour productivity terms - than the European one; however, we have to take into account the fact that Malaysia's performance is based on rubber and primarily palm oil, the prices of which are partly a function (both on the cost and the demand side) of the rising cost of energy. The long-term question may really translate into the market response of agriculture, or the capability of farmers to shift crops in response to price incentives. Here in Asia, that question relates obviously to the capability of farming households to deal with the risks involved and restrictions on scale processes.

There are many voices indicating a need of a second Green Revolution through genetically modified seeds. While this could result in higher land productivity and reduce risks especially of pest and disease, a second stream of wonder varieties is not likely to improve labour productivity in the long run, if the trends in labour productivity during the Green Revolution are anything to go by. India, Indonesia and Thailand witnessed clear sustained growth in labour productivity in the 1980s, many other Asian countries did not show such distinctive positive trends. It is very important that we analyse the current impacts of the price increases of agriculture food and industrial commodities.

The Survey also confirms that agricultural development is a powerful driver of poverty reduction and social equity. A 1 per cent increase in labour productivity would reduce poverty for 2.4 million people. The poverty elasticities vary somewhat across the region but all available evidence points in the same direction.

There are perhaps six major reasons why agriculture is held back:

  1. Inequality in land ownership and the dominance of micro farms lead to low labour productivity.
  2. Lack of access to education and health reduces chances for more informed farming and better health, and chances to find a living outside agriculture.
  3. Investment in rural infrastructure has been quite low in most countries in the region. It is well known that access to electricity and roads provide a tremendous boost for local processing and trade.
  4. Macro economic policy has not led to stability everywhere; while currently there are strong inflationary pressures.
  5. Rural and farm credit remains a major issue in most countries, although some quite innovative instruments are being tried out.
  6. Finally, spending on agriculture R&D and extension has been consistently low throughout the region. The share of private agriculture R&D spending in Asia is around 8 per cent as compared to some 54 per cent in developed countries.

At the moment in Asia, in general, one can speak of supply-constrained economies and consistent investment in upstream infrastructure, roads, electricity, soft infrastructure, health and education is badly needed.

This Survey pinpoints two general strategies. The first strategy aims to revitalize agriculture, connecting the poor to markets, improving rural infrastructure and agricultural technologies, increasing capacity to adapt technology. The second strategy aims to facilitate migration out of agriculture. Connectivity is the main issue here as is education to empower the poor to enter the wider labour market. The two strategies are general but they carry a lot of implications for government and donors.

While there is consensus about the roles of hard and soft infrastructure in rural areas as a necessary condition to improve agriculture and, more generally, quality of life, the very fact that agriculture is a location-specific activity is of the utmost importance. In virtually all countries of the region the national level statistics hide very substantial differences and variations in resource conditions. In every country in the region a dynamic process of shifts in production centres is going on, based on ever continuing enlargement and concentration of urban demand. The key to success and making agriculture work for the poor lies in rational guidance of this process, while recognizing that the process is and should primarily be market driven. The generally increased importance of local governments as the prime local public sector investment partners may well prove to be the key in creating the condition for proper local development. Investments and policy attention from governments and development organizations have generally fallen, probably because of the long-term nature of improvement and the complexity of the interventions and the many linkages. This has caused tiredness and doubts about the effectiveness and feasibility of public intervention in the sector. However, if pro-poor growth is to be achieved, renewed government and donor engagement in agriculture at the central and the local level is essential. The role of the private sector has always been essential, and is constantly increasing throughout Asia.

It is more than likely that the direction of Asia's agriculture will show the increasing influence of wider economic growth in myriads of geographical patterns. It is also quite likely that the labour and land productivities in the two major types of agriculture - irrigated and rainfed - will differ substantially, with land productivity being the main pulling factor in irrigated agriculture, while one may hypothesize that labour productivity has more potential to grow in rainfed agriculture.

The author would like to acknowledge the generous assistance of Dr. Shamika N. Sirimanne, Chief of the Socio-economic Analysis Section, and Dr. Amarakoon Bandara, Economic Affairs Officer, of the Poverty and Development Division of UNESCAP, Bangkok, Thailand.