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Role Of Agriculture In Economic Development Economics Essay


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Agriculture which is predominantly the base of systems of economy in most of the under developed countries is the primary occupation of rural people in those countries. It is primary because it supplies basic necessities of human life, provides basic inputs for industries and, in addition to these, purveys goods for exports and other purposes. ". . . the rise in agricultural production . . . makes important contributions to general economic development and that, within considerable limits at least, it is one of the preconditions which must be established before a take off into self sustained economic growth becomes possible" (Nicholls, 1970). Earlier development economists like Arthur Lewis (1954), Hirschman (1958) and Fei and Ranis (1961) have identified and analyzed how agriculture contributes to the overall economic growth of a country (Higgins, 1982). They highlighted that the 'unlimited labor supply' in the agricultural sector of an underdeveloped country can be transformed to industrial sector and the ability of agriculture to transfer its abundant resources to other sectors actually lead the economic growth of any country.

Contribution of agriculture in an economy is judged by the value of the total quantity of output in the Net National Product (NNP). A ratio between the output of agricultural sector and the output of non-agricultural sector, or the proportion of the former in the NNP furnishes a reasonable evidence not only of the nature of economy but also its stage of development. Simon Kuznets (1961) observes that "an increase in the net output of the agriculture is, in and of itself, sum of the increases in the net products of the several sectors" (61). So long as the rate of growth of the non-agricultural sector is higher than that of the agricultural sector, the proportional contribution of agriculture in the total product will decline. His model for assessing the product contributions to the NNP quite explicit and it is delineated as follows:


Where, A= Product of Agriculture; O = Product of all other sectors; P= Total Proudct =(A+O); a=rate of growth of A ; o=Rate of Growth of O; d= change. The increment in the total product is the aggregate of products of sectarian outputs as multiplied by their respective rates of growth.

Role of Agriculture in Economic Development- Traditional approach

The traditional and earlier approaches proposed by development economists like Lewis, Fie and Ranis, and so on highlighted the important roles of agriculture sector in the economic development of any country (Vogel, 1994). A fast track development of this sector is crucial for other sectors as well. Only a strong and efficient agricultural sector can feed the growing population of a country, provide employment, play vital role in the foreign trade and earning of foreign exchange and give a strong base to the industries. Because of these multifaceted functions of agriculture, it has got a multiplier effect on any country's socio-economic and industrial scenario. Thus according to the traditional analysis the role of the agricultural sector is confined to the source of food, source of livelihood, role in foreign trade, capital/savings transfers and its role in industrial development (Stringer, 2001).

Source of Lively hood

Most of the developing countries depend on agriculture and allied activities for their livelihood. Agriculture provides immense employment opportunities to the masses and this assumes much significance when the growing working force does not come out of the yoke. The figure may be varied from 10 percent to 60 percent in the contemporary scenario generally prevailing in the developing and underdeveloped countries across the globe.

Importance in the context of food security

The character and content of a country's economic structure alongside the potential for its further growth and development are largely dependent not only upon the quantity but also upon the type of its output generated and distributed in the economy. For example, an undue emphasis on the production of industrial inputs in the economic policy of a country for gearing up the pace of the economic development may result in cutting down of the food production and thereby creating an acute shortage of food- and ultimately, it hits hard the have-nots alone (Sharma and Desai, 1980).

Engine for Industrial and Service Sectors

Agriculture has been a constant source of inputs for major industries in most of the developing countries. The production, productivity and growth of the agro-related industries like cotton, sugar, tobacco and non-edible oils are highly dependent on the production and productivity of the agriculture. Since economic soundness and development of industries are dependent upon industrial production, the phase and the pace of the industrial development may directly dovetail with the agricultural sector in most of the developing countries. If there doesn't exist much scope for the rapid expansion of agricultural sector then it will have a direct bearing upon the industrial sector as well seriously hampering the possibilities for a massive industrialization.

The positive interrelationship between agricultural growth and non-agricultural sectors is already a highly established relationship especially in the contexts of Asian countries. The countries with high agricultural growth rate have got the simultaneous experience of high growth in non agricultural sectors. For example, Indonesia and Malaysia, who have the agricultural growth rates of 1.7 and 1.26 percents respectively during the period 1970-95, have got inspiring non-agricultural growth rates of 6.23 and 5.34 respectively. Likewise, Bangladesh has got the experience of very low agricultural growth rate with corresponding low growth in non-agricultural sector.

It is generally admitted in the present development debates and academia that one percent of annual growth rate in the agricultural sector tends to fuel 2.1 percent of industrial and service sectors' acceleration (FAO, 2001).

Role in Foreign Trade and Drive to exports

The items like tea, coffee, spices, cotton, fruits and vegetables are the traditional items of exports and they are produced in farms and not in the factories. Agriculture contributes in the building up of the foreign exchange reserve and its contribution is so significant that it may reverse the terms of trade as well as the balance of trade of any country in which it plays vital role.

Supply of Savings for Industrial Investment

The process of the development of an economy, particularly during its initial stages, depends on the savings from agriculture for investing in industrial and service sectors. After a point of time, the savings from the agriculture sector will not be invested in the same sector itself mainly because it will not create positive marginal productivity and hence, savings from agricultural sector is invested and re-invested in industrial sector for further economic growth.

Non-traditional role of agriculture in Economic Development

It is natural that when economy grows, the subsequent share of agriculture, in terms of national income as well as livelihood, tends to decrease. The primary reason for this phenomenon is the decreasing demand for food with the income rise and expanding food supply (even with same laborer and land) with technological advancement. The intermediate goods purchased from non-agricultural sectors have also been increased and there exists a complex linkages to industrial and service sectors have been evolved. In the context of changing roles of agriculture, the non-traditional role of agriculture has been confined to contributions to Agribusiness activities, Social Welfare infrastructure, poverty reduction and rapid productivity growth.

Involving Agribusiness activities

The traditional functions of processing, storage and transportation have been given up and more complex and specialized functions have come in the way of agriculture. A new, long and circular chain of merchants, distributors, assemblers, suppliers, brokers and the like has come in the way (Newman et al, 1989; FAO, 1997). Agricultural commodities are used as inputs in food processing industries. In Argentina, Korea and Brazil, more than 60 percent of the inputs are given to them for further economic activity in contradiction to India where more than two-third is consumed directly (Holyt and Pryor, 1999). The share is less among USA, Mexico and Philiphine (----------).

Social structural infrastructure

Agriculture involves in a number of welfare enhancing activities - 'income' transfer and income-shock of financial support are some of them. For example, if a recession or any other economic shock is confronted by an economy, it will be affected by different aspects like assets, public traffic, and gender. During the crisis situations, agriculture can act as buffer and safety net (FAO, 2002). In many cases, agricultural submitting can act as a buffer, softest nut and the negative agriculture sector.

Rapid Productivity

It is a historically given fact that growth in the productivity of agriculture is much more fast than the productivity growth of the manufacturing sector. The pace of growth in the productivity of farming sector, especially in agricultural exporting rich economies, has been comparatively rapid. This has come into the larger visibility in the case of US where the total factor productivity in the farming sector has been much more rapid than the non-farming sectors (Jorgenson and Gollop 1992). This has remained more or less the same in the contexts of Australia and Canada as well (Martin and Mitra, 1998). Worth mentioning in this context is the fact the quality of food products thus coming out of the farming and the further conditioning of the same in industrial conditions have considerably increased the safety factors and has enhanced their consumption in the global markets.

Agriculture's economic contribution to alleviating poverty

The relationship between agricultural growth and rural poverty is already articulated in unambiguous terms by several studies to the extent the former is constantly associated with the falling rates of the latter (Binswanger and von Braun, 1991; Timmer, 1992; Bell and Rich, 1994; Johnson, 1998; Mellor, 2001). The positive impacts of a solid growth rate in the agricultural sector are many. While, on the one hand, it considerably lowers the food prices especially for consumers in urban areas and rural net-food buyers and enhances more opportunities to yield income so as to prevent rural to urban migration considerably; on the other hand, it exerts impact upon trade, increased productivity and migration through positive intersectoral overflows (Lipton and Ravallion, 1995; Timmer, 1992). The instances of China and Indonesia deserve mentioning here where massive growth in the agricultural sector has considerably minimized poverty especially in the rural areas; food security remained no longer a central concern and this situation has further had a critical positive effect upon goods and services beyond the agricultural sector itself. In fact no economy has been able to grow and sustain itself without first successfully dealing with the problem of food security (Timmer et al, 1983; World Bank, 1996).

Agriculture has played a key role especially in the post-reform economic context of China where agricultural GDP almost touched 8% per annum during the early phase of reform period then gradually reaching a consistent 4% (still remarkable) that have continued to remain in the 21st century as well (1978‐1984). Due to heavy industrialization the role of agriculture has considerably subsided resulting in a decline in the employment and output rates. The early phases of reformation period had witnessed high rates of return in agricultural sector which was additionally strengthened by the government interventions and the changes introduced including a conversion in the decision making mechanisms. The state had indeed set base prices to procure staple crops in the late 7-s and early 80s before liberalizing policies were adopted. Ever since the agricultural sector has shifted completely towards cash crops and horticultural goods. There has also been a remarkable growth in the share of fisheries and aquacultural produces. Constitution of networks between markets and specialization in specific produces have been particular features of this trend.

On the contrary countries which have had successful agricultural revolutions, like India and Philippines, remained unsuccessful in transforming that success into a proportionate growth in their respective economies. Although India was quite late to enter into the liberalization programmes, even this late entry has reaped encouraging results. Whereas in the context of Philippines inequity in agricultural growth has continued to remain in addition to a feeble rural infrastructure.

rural and urban poverty in a few selected countries (in % of population below the poverty line)





Survey Year































Meijerink and Roza, 2007.

The Example of Brazil- the Case of Success story and Cases Country Examples

In this section I shall discuss the example of Brazil where agriculture have played an important role in sustaining higher development levels at the same time as eradicating poverty to a considerable extent. In Brazil agriculture has literally gone beyond its basic functions related with providing food to enhance the environmental conditions, to play a significant role in shaping its landscapes and to play a distinct role in managing renewable energy resources. The deployment of agricultural sector in the national economy is fashioned in such a way as to fulfill the diverging demands of the various sectors that largely cater to the socio-economic and industrial requirements of the nation (Humbert, 2000:1-3). The Brazilian context is a glaring instance of agriculture's instrumentality to engender rapid transformations in the rural economic scenarios, to strengthen the peasantry and to eradicate poverty.

The discussion of Brazil simultaneously invokes certain counter instances in this respect. An immediate paradox that comes to vicinity is that of the Nigerian economy. Curiously enough the Nigerian economy indeed accredited its agricultural sector with due significance in the early days of its independence and it could rightly be labeled as an agrarian economy. Agriculture was very much significant in sustaining the larger economic growth of the whole nation during those days - both in terms of employment redistribution and its contribution to the total GDP (Ogen, 2003:231-234). In these early phases of independence Nigeria was one of the leading countries in the whole world in the production of cocoa, to produce and export palm oil in very large quantities and one of the largest exporters of palm kernel. Besides Nigeria was also prominent in the exporting of groundnut, hides and skins, cotton (Alkali, 197:15-16). In 1960 60% of the total GDP of Nigeria was contributed by the agricultural sector where the farmers still depended upon the traditional tools and methods and despite produced 70% of agricultural exports and 95% of the domestic food requirements (Lawal, 1997:195). Evertheless the scenario in Nigeria has taken a reverse direction in the later periods due to a completely unsystematic approach and a total neglection of agricultural sector - a policy continued by more or less all the successive governments (Ogen, 2003; Lawal, 1997).

On the contrary the response on behalf of the Brazilian economy has been an entirely a positive one which further not only opened its domestic market to the outside world but also incorporated high level technological standards inaugurating an era of opportunities for both domestic and foreign companies to involve in joint ventures of different sorts as well as reducing the cost involved considerably. On the contrary the negligence for agricultural sector has by and large converted the Nigerian economy into a mono-cultural one with its base remaining on singularly on the crude oil sector. The different governments in Nigeria, from 1975 onwards, have attempted to resolve this situation through different policy measures. In 1975 the government even decided to involve itself directly in the production of cash crops.

A large number of agricultural projects were started at large scale level under the direct leadership of government in Nigeria. They included projects that specialized in the production of food grains, animal feeds, dairy products and so on in addition to the, particularly, sugar factories (Fasipe, 1990: 129-130; Lawal, 1997: 196). A network of cooperative banks was established with the Nigerian Agricultural and Cooperative Bank (NACB) at its top in 1973 to redirect the surplus gained from the oil sector to the revival of agricultural sector (Olagunju, 2000: 98). Despite all these measurements the situation continued to be grim precisely because of the lack of any technological advances made in this respect due to lack of technological collaborations and lack of a systematic approach.

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