Agriculture development, rural poverty & public policy

Colin Bullock, Contributor

Agriculture embracing cultivation, animal husbandry and fishing provides for human nutrition, clothing and inputs for other food and industrial processing. As economies develop, agriculture tends to fall in relative importance in contribution to gross domestic product (GDP). While developed economies like the USA, France and Japan support and protect significant agricultural sectors, the support of agriculture has been less structured and sustained.

Starting in the United Kingdom, the social and organisational transformation of feudal agriculture laid a substantial part of the basis for the industrial revolution, including the provision of food, labour and financial surpluses. As posited by the late Dr Eric Williams in Capitalism and Slavery, the more substantial financing of industrial transformation in Britain came from sugar plantation slavery in the new world.

The late Professor George Beckford, in his Persistent Poverty, outlines how the structure of modern Caribbean economy was conditioned by the slave plantation system. The effects included dualism (uneven distribution of economic resources including land), dependence on external demand, extreme dependence on imports and prominence of distribution ('buying and selling').

The post-slavery modification of the Jamaican economy reinforced the structural factors listed above. The dualistic coexistence between export sugar plantation economy and largely subsistence small-scale peasant agriculture was supplemented by export-driven demand for bananas, coffee, cocoa and dried pimento. Tourism, originally an offshoot of banana shipping, and bauxite-alumina imports were also export-driven. Industrialisation from the 1950s was based on protectionist import substitution and, like tourism and mining, supported by tax concessions.

Relatively small-scale farmers earned cash for production of bananas, coffee, cocoa and pimento for export. They also produced tubers, fruits and vegetables for domestic markets. A substantial part of small farming was for subsistence with relatively small surpluses for sale.

In 1950, the agricultural sector contributed approximately 31 per cent of gross domestic product (Dr Owen Jefferson: The Post War Economic Development of Jamaica). If sugar had been king, then banana had become green gold with parishes like St Mary, Portland and St James, including large and small landholding, being among the most prosperous in Jamaica.

After independence, export agriculture suffered the progressive loss of preferential access to Britain and Europe, and of competitiveness relative to larger-scale international competitors. In the structural adjustmentprogrammes from the 1970s to 1980s, support systems for domestic agriculture (including research and extension services) were significantly undermined. Domestic production, in a context of trade liberalisation, was also exposed to increased competition from imports.

By the turn of the century, there had been a drastic shift in the structure of the Jamaican economy. The Economic and Social Survey of Jamaica reports that goods-producing sectors contributed only 27.1 per cent of GDP in 2004, while services contributed 72.9 per cent. Within the goods-producing sectors, manufacturing, mining and quarrying and agriculture were respectively contributing 4.1 per cent, 9.6 per cent and 5.2 per cent of GDP. By 2009, the imbalance had worsened with a preliminary estimate of agriculture (growing by 12.1 per cent after two years of negative growth) contributing 5.6 per cent of GDP.

The Planning Institute of Jamaica's agricultural production index reports that in 2009, production of export crops and post-harvest activities were 63.8 per cent and 70.8 per cent of their levels in 2003. Animal farming recorded a marginal improvement and fishing had fluctuated, but was still 20 per cent above its 2003 level. "Other agricultural crops" had declined and then recovered in 2009 to 98.6 per cent of 2003 value.

A major challenge in Jamaica relates to a failure to translate respectable rates of investment in incentivised sectors into stronger economic growth. In this regard, strong investment in tourism in the last decade has not been associated with a demand-driven transformation of the agricultural sector. There are complex issues to be resolved including the ability to guarantee cost-effective, adequate and predictable supply.

The Case for Rural Development

The agricultural sector has suffered from a changing international environment, variable public policy and severe objective constraints. Even as the Government pursues the divestment of its sugar holdings, bananas are produced mainly for the domestic market as the major export producer moves to diversify its domestic and international business interests. Coffee production and marketing (partly state-owned) is challenged to diversify its export markets. Public policy is pursuing the growth of agriculture, showing positive results in "Other Agricultural Crops" in 2009.

Given the relatively small size of the agricultural sector, is the strong effort at resuscitation worth it? A broad consideration of the fundamental economic and social importance of the agricultural sector yields an unambiguously positive answer.

Two-thirds of the world's poorest people live in rural areas and are mostly dependent on agriculture for survival. Their poverty is conditioned by the largely subsistence nature of their agriculture, its precarious nature and the logic of risk-averse small-scale mixed farming (as distinct from specialised cash-crop production).

The precarious existence of agricultural poverty is related to limited access to cash, to land, to productive inputs, ability to pay labour and access to credit (often due to unaffordable market interest rates and no land titles for collateral) and praedial larceny. Additionally, farming is susceptible to the vagaries of the weather and price fluctuations, and without adequate crop insurance or market smoothing mechanisms in developing countries.

The Jamaica Survey of Living Conditions (STATIN-PIOJ 2007) establishes that Jamaican poverty is more prevalent in its rural population. The prevalence of poverty is reported as declining from 19.9 per cent of Jamaica's population in 1997 to 9.9 per cent in 2007. That of the rural population has remained substantially above the national average declining from 27.4 per cent to 15.3 per cent. Over the same period, rural areas have consistently reported about 70 per cent of Jamaica's poor, with the Kingston Metropolitan Area increasing from 14 per cent to 20 per cent and "Other Towns" falling from 13 per cent to nine per cent.

The fragility of rural existence has conditioned a significant rural-urban population drift of a largely uncertified and untrained rural population, "in search of a better life". This generates the extensively documented problems and costs of unplanned urbanisation including squatter communities, substandard housing, substandard sanitation and public health, and crime. Ironically, those who are appalled at the squalor of urban settlements often overlook the reality that the rural poor exist at an even lower level of consumption.

Broad-based rural/agricultural development, therefore, is not only to the economic benefit of the rural poor. It also has the potential to contribute to a resolution of the problems and costs of unplanned urbanisation. Additionally, as amply demonstrated by developed and rapidly transforming economies, a productive agricultural sector is useful in providing food for a growing and hopefully, productively employed urban population. This is of particular importance in an economy where there is extensive underutilisation of land coexisting with human unemployment and underemployment.

The Role of Public Policy

Public policy in developing countries has often associated economic development with facilitation of the "modern" sectors in manufacturing and services, often to the neglect of agriculture. (See comment above on the limited structural and dynamic impact of incentivised sectors). It is clear that applied incentives have created distortions in sectoral development. In this context, is there a case for special support for the agricultural sector?

In response to the question above, neoclassical purist may say "no". The invisible hand of the market is all that is needed for optimal productive allocation of resources. Occupational mobility, and some geographical mobility of resources, will ensure that they are allocated to their "best" economic utilisation.

Conversely, market failure is accepted as a basis for public policy. There is ample evidence of market failure in agriculture. Some of these are listed in Todaro and Smith's Economic Development as under:

1. Environmental externalities (vagaries of the weather and prohibitive costs of insurance)

2. The "public good" nature of agricultural research and development and extension services. (Not likely to be provided cost-effectively by private markets).

3. Lack of economies of scale in marketing (and the tyranny of the "middleman").

4. Information asymmetries in product and input qualities.

5. Exploitative market dominance in input supply and in purchasing.

Additional factors (discussed above) include access to land and land titling, irrigation access to credit and praedial larceny.

Todaro and Smith emphasise that rural development is not only about increasing agricultural productivity and output. They speak to diversified social and productive development to enhance the quality of life of the rural population.

A stronger public-sector role in rural development is justified. It is clear, too, that this input should be assessed on the basis of comprehensive social, rather than narrow private cost-benefit, analysis. The strong social benefits include ameliorating rural poverty and unplanned urbanisation. In the context of scarce fiscal resources, Government is challenged to prioritise its developmental expenditure.

The complexity and difficulty of rural transformation must not be underestimated. Issues including occupational orientation, land access and titling, credit, research and extension, input flows, marketing, praedial larceny, international competitiveness and international trading agreements have to be approached in a comprehensive and systematic fashion.

Colin F. Bullock is lecturer in the Department of Economics, Uwi, Mona. Feedback may be sent to columns@gleanerjm.com