Agriculture and economic development | tutor2u Economics
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Agriculture and economic development

  • Levels: AS, A Level, IB
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

For many lower and middle-income countries, the farm sector remains a significant contributor to exports, employment and economic growth. Raising productivity in agri-businesses and food related companies can have a significant effect on lifting per capita incomes and making progress elsewhere towards achieving Sustainable Development Goals. Many of the barriers to improving agricultural productivity are linked to market failures.

According to the World Bank, farming currently accounts for about 60 percent of total employment in sub-Saharan Africa.

Improving agricultural productivity

In many lower-income nations, the majority of growers/farmers are small-holders with limited capital equipment and restricted ability to exploit economies of scale. Asa result, the unit cost of output may not be low enough to be competitive in overseas markets. These countries then become more reliant on imports of food which worsens their current account of the balance of payments and risks increasing external debt.

A low capital stock also makes small-holders vulnerable to extreme weather and inadequate insurance and access to credit holds back production.

Strategies to raise productivity might include some of the following:

  1. Investing in better and extensive rural roads and renewable energy supplies 
  2. Investment in small scale capital inputs - e.g. Solar refrigerators help dairy farmers in Kenya cool their milk products and reduce spoilage. Capital can help farmers to process their products and therefore add more value to the local economy.
  3. Use of mobile technology to provide farmers with better real-time information on weather patterns and market prices for their produce so that they can get the best price and improve their terms of trade)
  4. Creation of farmer groups (e.g. cooperatives) with stronger bargaining power versus multinational buyers with monopsony power
  5. Expansion of micro-credit to allow the purchase of better fertilisers and also finance irrigation schemes to make crops more resilient to floods and droughts. Fertiliser use in Africa is substantially below any other part of the world.
  6. Policies to attract agri-businesses - i.e. farming on an industrial scale to better exploit internal economies of scale. A good example is the expansion of aqua-culture to increase the supply of fish to meet growing demand 
  7. Training farmers in modern farming techniques (an improvement in human capital)
  8. Investment in land rehabilitation to tackle the erosion of farmland
  9. Policies to encourage entrepreneurship and innovation in farming - e.g. Hydroponic Vertical Farms being developed in a number of countries including Vietnam
  10. Gradually wean farmers off subsidies that can in the medium term lead to production inefficiencies and cause government failure
Vietnam: When Containers Are Turned into Hydroponic Vertical Farms
Nigeria’s Fish Farmers Take New Paths to Profitability

Improving access to advanced country markets

This is a key issue. The European Union provides import tariff-free access to the food exports of many of the world's poorest countries.

Why China's agricultural system is inefficient
Vietnam: Sustainable Farming for Higher Productivity and a Better Environment

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