Can Subsistence Farmers Contribute in Economic Development? HOW ?

One of the biggest barriers for human development and economic growth is poverty which prevents people from taking advantages of opportunities. Majority of the poor live in rural areas and depend on agriculture and rural livelihoods for their income and food security (FAO, 2017). Amongst the 702.1 million people who live in poverty (World Bank, 2015), 90% work in agriculture. Most of the people associated with subsistence agriculture (i.e. land output only enough to feed themselves due constraints of land or other resources) are also affected by other impediments like education, unemployment, nutrition, healthcare, access to credit etc. and hence are in spiral of poverty. The core problem of widespread poverty, growing inequality, economic instability originates in the stagnation of subsistence agriculture. If development is to be targeted for the larger section of society, agriculture sector has to be focused particularly and primarily.

Defying Malthusian predictions of global food shortages with the growing population, an impressive range of programs has helped to increase the productivity of land over the last several decades (Todaro, 2006). However past growth has done little for the poor (Mellor, 1976). Traditional economic models, like Lewis’s 2-sector model and Kuznet’s model gave little importance to the development of agriculture for the eradication of poverty. Most of the models for economic development announced agriculture as a catalyst to industrial growth but not as an engine driver of economic growth. 

However, modern and contemporary economists like Johnston and Mellor (1961) elucidated key channels by which the agricultural sector in developing countries contributes to overall economic growth. Mellor and others (Mellor, 1976, 1992; Delgado et al., 1998; Hazell and Ramaswamy, 1991) showed that agricultural growth and accompanying growth linkages have wide-ranging impacts on overall growth and the incomes of the poor. Prosperous agricultural growth can have far reaching favourable implications for the economic development of low income countries in terms of increasing employment and greater participation of poor in economy (Mellor, 1976).

Debunking the belief that industrial growth is more instrumental in addressing economic development, Ethiopia relied on agriculture as a strategy for poverty reduction. According to CRGE (2011), the Ethiopian economy was evaluated to be the third fastest growing economy in the world. Ethiopia’s GDP has soared by three times since 1992 with a proportional reduction in poverty. This makes Ethiopia an interesting case to study and henceforth this essay will discuss the importance of agriculture in poverty alleviation and economic development. Strategy of a low income economy like Ethiopia will be examined and impact and challenges of the agriculture led economic growth as a strategy (especially ADLI, to be explained in the further section) will be discussed at length. For a low income economy where 80% of the population depends on subsistence farming, the challenge is not only to produce enough food, but also to raise the living standards. Because of the better availability of data and the roll out of the policy, the essay focuses on the period from 1990 to 2011. This essay also outlines how emancipation of subsistence farmers can have domino effect on the other sectors of the economy and the relevance of agricultural growth in the upliftment of the economy by the participation of poor subsistence farmers.

Ethiopia’s focus on poverty reduction through agriculture 

After years of political instability, civil wars and recurring droughts, Ethiopia had its Government formed in 1991, which embarked upon a broad spectrum of reforms to address the crunch of economy (Zewdie, 2015). Since 1992 Ethiopia instituted a series of plans to fight poverty through agriculture and focused on policies such as the Agriculture Development Led Industrialization (ADLI). One of the challenges for the Ethiopian agriculture has been the traditional and inefficient farming practice which is vulnerable to the fluctuations of nature. With 80% of Ethiopia’s population dependent on subsistence farming and an average land holding of 0.9 ha, ADLI focused on the labour oriented approach to achieve significant growth in agricultural production, raise in rural incomes, attainment of national food security, and production of surplus food.

Mellor (1976) emphasises agriculture and labour oriented strategy for economic development needs immense support from the government,and the transmission mechanism for poverty reduction are :

1. Cheap food from technological innovations : The low price elasticity of food and the crunch in the market, may translate into large spikes in domestic prices, further reducing the real incomes of poor consumers (WDR, 2008). Substantial increase in income increases the capacity of the poor to spend on food and hence, demands far more production of food than previous levels. Increased food supply is one of the prime production component of increased welfare of the poor. To increase the food production from the same limited land, technological innovations are imperative. 
2. Income multiplier effect : Increased rural incomes, increases the ability of the farmers to save more and henceforth spend more on other consumer goods and small scale enterprises. Increase in rural income sets in motion a sequence of income multiplier effect which can stimulate expanded production and employment in other sectors of the economy. This growth can be further related to Prebisch–Singer hypothesis which explains, as incomes rise, the demand for manufactured goods increases more rapidly than demand for primary products.
3. Stimulate diversification : Diversification represents cultivation of more than staple crops. Diversified farming can minimise the impact of staple crop failure and can provide a security of income.
4. Increased farm income and jobs : With increased innovations, the factor productivity of the land increases. New varieties and crops increase the productivity of the traditional farm land and increase the demand of the labour on the land. Expansion of agricultural production and activities would increase the demand for industrial products (both agricultural inputs and consumer goods) produced by domestic industries. (Lulit et al., 2010).

Following the Mellor (1976) strategy, the ADLI's distinctive features included: (i) commercialisation of smallholder agriculture through product diversification; (ii) a shift to higher-valued crops through use of technology ; (iii) promotion of high-value export crops; and (iv) effective integration of farmers with domestic and external markets. ADLI focused on achieving faster growth and economic development by making use of technologies that are labour intensive, but land augmenting, such as biological innovations (improved seeds, varieties etc), chemical innovations (fertilisers, pesticides, herbicides etc.) and other cultural practices (FDRE, 2011). Government introduced measures like providing the smallholder farmers with technology and better farming practices, improved seeds, fertilisers, irrigation, rural roads, and marketing services to increase agricultural production (GRIPS, 2009). Over the period of two decades (1990s-2010), total fertiliser consumption increased by 144 percent. Other chemical use, such as the use of pesticides and herbicides by farmers, increased as well (GRIPS, 2009).

The most important sub-sector in Ethiopia’s agriculture is crop production, and Teff is Ethiopia’s most important cereal crop. The other major cereal is maize apart from wheat, sweet potato and sorghum. Agricultural output doubled, importantly by significant increase in yields (refer Fig 1). Improved variety release has been particularly dynamic for Teff and Maize with 32 and 45 improved varieties respectively released over the last 40 years (Bachewe, 2015). The productivity of these crops from the same area increased (refer Fig. 2). 

Fig 1. Cereal crop output by ha (source : FAO, 2019 ) 

Fig. 2 Growth in the Productivity (quintal/ht) for major crops Teff and Maize. (source: CSA, 2016 ; Cochrane, 2018) (Drop in production in the year 2004 can be accounted for the drought year 2003.)

High government expenditures on the agricultural sector, including extension services and increase in modern input along with improved road network, higher rural education levels, and favourable international and local price incentives helped in reduction of poverty (Fantu, 2015). While 67 percent of the population lived more than 5 hours from a city in 1997/98, this declined to 26 percent in 2010/11 (Fantu, 2015).

Over the last decades, the poverty levels in Ethiopia have fallen drastically by half with poverty head count i.e. the percentage of the population living below the national poverty lines (World Bank, 2015), plummeted from 56 percent in 1992 to 29.5 percent in 2011 (MoFED 2012) (refer Fig 3), and the economic growth has seen a whopping increase from -8.6 % in 1992 to 12.55 in 2011 (refer Fig. 4).As farmers earn more, their tendency to invest in other basic social services like education, health care and other basic social services increases. 

Fig 3. Poverty headcount ration of Ethiopia (Source : world bank, 2015)

Fig. 4 GDP growth in Ethiopia from 1992 - 2015 (source: World Bank, 2015)

During the time frame, the average per capita food consumption increased by more than 20 percent (World Bank, 2014), along with relative decline of expenditures on cereals in the consumption basket was noted, indicative of important changes in food consumption habits. It also implies the Engel’s law, whereby proportion of expenditure on food declines with rising income even while food consumption and the proportion of expenditure on important subclass of food increases.

The reduction of poverty in Ethiopia owes highly to the public sector investments. The government has made strong commitment to the sector through allocation of more than 15% of the total budget (MoFED, 2006). With one of the highest extension agent to farmer ratios in the world, Ethiopia managed to set up a large agricultural extension system in the last decade (Fantu, 2015). With a significant improvement in access to education, Ethiopia led to a significant decrease in illiteracy in rural areas. With improved market access and improved modern inputs for local crops over the last decade, have provided better incentives for the agricultural sector. These factors show a strong association with increasing adoption of improved technologies, and consequently agricultural productivity (Fantu, 2015). Still there are challenges which needs to be addressed.  

Challenges in the agricultural centric labour intensive growth 

Ethiopia’s agricultural sector has performed well over the last two decades, registering an average of 8% growth. However, there still remains high potential for improvement in productivity, production and market linkages. Development in agriculture demands the role of the government right (Todaro, 2006). Market failures in the agricultural sector is quite common and includes environmental externalities. The role of public investment hence becomes critical to support the research and development, extension services, marketing, information asymmetries, controlling monopoly of power in input supply, apart from institutions (credit, post harvest, educational ) and infrastructure. 

One of the major issues in implementation of agricultural innovation is farmers‘ non acceptance to the new vulnerable technologies which might discourage him/her from adopting it. When risk and uncertainties are high, small subsistence farmers could be reluctant to shift from traditional methods to opt modern technology (Todaro, 2006). In such scenarios, farmers should be provided with adequate insurances in the form of financial credit and physical buffer stocks. Also, instances from Asia and Latin America has shown that farmers do not respond to new technologies due to: a) disproportionate gains transferred to the landlords b) moneylenders bigger share in profits c) governments guaranteed prices never being paid d) complementary inputs (fertilisers, water, electricity ) never being made available. 

Social exclusion is another very vibrant challenge faced in the promotion of agricultural led development. Exclusion because of economic status, ethnicity, caste, language, region or gender, keeps one away from opportunities which incubates inequality in the society. A key role of government is to make sure that growth in agriculture is shared by all. Many development policies continue to wrongly assume farmers as men (WDR, 2008). For example, In Africa, subsistence farming is predominant and nearly all tasks are performed by women. Policies considering the importance of women farmers are more required in these regions. Birhanu (2006), recognises pastoralism is not recognised by policy makers’ as much as sedentary agriculture. Less attention for pastoral development, low and ineffective technology generation and dissemination, less coordination among stakeholders, and poor land management are faced.

Twenty five percent of the damages to agriculture are caused by natural hazards and disasters due to climate change. Climate and environmental stresses, are required to be addressed by more sustainable agriculture sector. Evidence has proved climate change to be the most threatening for the rural poor. The progressively volatile and extreme weather patterns are destroying infrastructure, harvests, fish stocks, natural resources along with endangering species (FAO, 2007). Effects of climate change in agriculture needs to be addressed immediately. 

While, technological innovation (biological and chemical) is one of the important aspects of agriculture led development, sustainable and proper use of chemicals is a challenge. Overuse of chemicals has led to the contamination of air, water and soil. In general, the employment oriented growth plan fails if major technological change in agriculture does not provide significant acceleration in production (Mellor, 1976) and attacks the sustainability. In a situation where many farmers are illiterate, acquiring capabilities for profitable outcomes poses challenge. To tackle this problem, the role of assisting and training farmers is indispensable.

Conclusion 

The eventual aim of every country is to raise the living standard of its people. Choosing agricultural development as a strategy gives it an impetus while increasing the participation of the poor. To achieve transformation in low income agricultural based economies, it is imperative to increase the agricultural income along with increasing the employment generation by increasing labor productivity. 

Agriculture is a slow growing sector (Mellor, 1995), but has a large mass. The large mass implies large output and hence demands large inputs (making the role of public sector momentous). Because of the large masses of population involved in agriculture with humble incomes, their pattern of consumption tends to favour locally produced, labour intensive goods (Mellor, 1976), which drives the growth in other sectors of the economy.  

The essay explored how increasing the productivity of small farms through higher-yielding technologies can increase the incomes of small farms and hence can help in the economic development of low income countries by increasing employment and greater participation of poor in economic growth. The agriculture led strategy of economic development has been justified since it is the largest sector in terms of output and, particularly, employment in a low income country like Ethiopia. 

Ethiopia’s 7% average growth rate during the past decades (World Bank, 2015) (adjusted for weather fluctuations) can largely be accrued to the transformation of traditional farm practices to modern technology-based growth. The country began implementation of integrated development plans with the adoption of ADLI which provided an agriculture led development framework for economic transformation. The three reasons for Ethiopia’s significant growth can be stated as: 1) rapid physical capital accumulation driven by a substantial increase of public investment ; 2) agricultural modernization along with substantial rise in agricultural productivity; 3) increased employment (Fantu, 2015). Emancipation of subsistence farmers for economic growth is more important than just commercialisation of farms and without integrated rural development, it might create internal imbalances in the economy.

Lastly, the essay focuses on the challenges that the agriculture faces. Improper representation of various groups from different parts of the society on the basis of cast, creed, sex, region, educational and socio-economic status in the agricultural sector might lead to skewed growth and hence birth inequalities. Subsistence farmers are the most vulnerable and are susceptible to major losses and hence, might not adopt any new biological or chemical innovation. Public investment is one of the major supports to insulate the small holder farmers from shocks of the market and climate change and hence incubate a proper environment for them to contribute in the development of the economy. 

References : 

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