Agricultural economics

• Agricultural economics deals with the economics of agricultural development.

Development and Economic Development

• Development involves change over time, typically growth and expansion, considering the condition before, after, and processes in between, focused on the time element rather than a specific period.
• Economic development involves changes in people's standard of living, improving economic, political, and social aspects.

Nature of Development Economics

• Development uplifts lives.
• It provides choices by supplying alternative goods and services, leading to less poverty and hunger.
• Cons include environmental degradation, unemployment, cultural changes, and industry decline.

History of Economic Thought

• Classical economics assumes full employment with efficient allocation of factors, wages adjust freely, and the economy self-corrects without government intervention, operating on a long-term horizon.
• Keynesian economics acknowledges unemployment, possible inefficient allocation, sticky wages, and flat prices, necessitating government intervention during recessions and depressions, focusing on a short-term horizon.
• Neoclassical economics focuses on economic agents' behavior, economic growth, efficient resource allocation, utility maximization for consumers, and profit maximization for producers.
• Major assumptions include rationality, self-interest, and perfect market information, advocating for less tax for the wealthy, laissez-faire, and focusing on efficiency and growth without redistribution.
• The traditional view focuses on economic growth (GDP) with benefits expected to "trickle down."

Development Beyond Economic Growth

• Despite economic growth, poverty, unemployment, and inequality persist.
• Growth without development may occur where the economy grows, but people's quality of life remains stagnant.
• Economists and policymakers shifted focus in the 1970s, arguing that development must go beyond economic growth.
• Amartya Sen defines development as improving the quality of all human lives, capabilities, living standards, self-esteem, and freedom.
• Development economics studies how economies transform from stagnation to growth, low to high income, and overcome absolute poverty.
• Economic development is harder to measure, with the Human Development Index attempting to capture more than just GDP.
• Economic growth, measured by increased GDP, is necessary, but not sufficient for economic development.

Development Goals and Structural Transformation

• Millennium Development Goals aimed to reduce poverty by half in 2015.
• Sustainable Development Goals, with a base year of 2015, aim for zero hunger and poverty by 2030.
• Structural transformation involves allocation of resources from low to high-income sectors.
• Focus during the 1950s-1970s post-WWII reflected this structural transformation.

Agriculture's Role in Economic Development

• Agriculture provides food and raw materials for the economy, including food staples, protein sources, and export crops.
• It also provides materials from forests and seas for industries like handicrafts.
• Agriculture is crucial for eliminating poverty and achieving zero hunger by 2030, concentrating the poor in the agriculture sector.
• Development plans should prioritize the agriculture sector, where most of the poor live and derive their income.
• Agriculture serves as a market for non-agricultural products like farm inputs, fuel, oil, credit, and loans.

Poverty Measurement

• Inability to meet basic needs, is a global phenomenon, and is multi-dimensional.
• The measurement includes survival, security, and empowerment, according to Norton et al. (2015).
• Monetary measures consolidate dimensions into a single unit (money) using income and consumption data for comparison, but fail to capture non-monetary dimensions.
• Non-monetary measures include qualitative assessments and indices like the Human Development Index (HDI).
• The international poverty line is defined as $2.15 US dollars per day (2017 PPP).

Hunger and Malnutrition

• Norton et al. (2015). Deficits in both macronutrients and micronutrients leads to hunger
• The 2022 report shows world hunger rose to 828M in 2021 due to the pandemic, though there is a global surplus of food.
• Globally, per capita food availability has risen from 2,220 kcal/person/day in the early 1960s to 2,790 kcal/person/day in 2006-2008.
• Principal causes: low income, diseases, poor practices, seasonal production, political issues, disasters, productivity, and transportation.

Food Prices and Population

• Nominal prices are increasing.
• Real prices decreased until 2006, then increased.
• High food prices are good for farmers but bad for low-income consumers.
• High energy prices, subsidized biofuel production, poor weather, economic growth in certain countries, restricted exports, and population growth led to sharply increased food prices from 2006-2008.
• Food prices spiked again in 2020 due to the pandemic, supply chain issues, the war in Ukraine-Russia, and India's rice export ban.
• Food prices may not return to lower levels, especially for rice.

Transformation and Development

• Structural transformation shifts resources from agricultural activities to other sectors.
• Agriculture grows more slowly, showing declining shares of output and labor.
• Key characteristics of poor countries include low labor productivity and high expenditure on food, with labor, land, and livestock as key assets.
• Semi-subsistence defines agricultural production, where produce is mostly consumed at home.

Causes of Change

• Income inelasticity of demand for food leads to incomes as productivity increases, shifting demand to non-food goods.
• Engel's Law states that as income increases, people spend a smaller portion on food.
• The Bennet's Law observes as income increases, people transition from cheap products () to expensive protein (meat, eggs, dairy)
• If agricultural production grows, prices for farmers will fall more, creating incentives to shift resources to non-farming activities.
• Economic growth, capital, and market opportunities allow specialization and trade.
• Farmers produce less of their own food, clothes, and furniture, shifting activities from "agriculture” to “industry".
• Land supply is fixed, while capital can expand, diverting savings to other uses and increasing investments in retail or services.

Agriculture and Economic Evolution

• The value of agriculture remains significant.
• Labor gradually transfers, with family labor dominating agriculture and developed countries focusing on capital investments.
• The number of farm workers per family declines as the economy grows.
• The number of farms decreases while farm size increases and there is a trend towards land consolidation.

Economic Expansion Factors

Factor Intensification

• Population growth increases labor, but is limited by diminishing marginal returns.
• More consumers grow fewer products i.e. migration lowers productivity over time.
• There is a large portion of the labor forces is too young.

Natural Resources

• Reliance on finite natural resources, such as land, results in environmental issues .
• Future constraints: Natural resources need tech adaptation

Physical Capital

• Investment requires savings.

Technological Progress

• Increases in scale and specialization improve efficiency.
• Increased production and improvement through technical/price allocative effectiveness, may render components as obsolete.

Economic Growth

• Human Capital increases education, management, quality and productivity.

Economic Theories on Growth

Classical Model

• Occurred during the 18 to 19th centuries.
• Four proponents: Adam Smith, David Ricardo, John Stuart Mill, and Thomas Malthus.
• Economic growth will occur, however the economy will eventually decrease and end due to population and limited resources.

####Classical Theory of Growth

• Technological progress can postpone the stationary state; however it will eventually occur.
• The model underestimated tech and labor roles.

Linear stage growth

• Was popular from the 19th to 20th Century based stages of sequential growth, for the social
• Fredrick List focused on shifts in employment
• Karl Marx based on changes in technology
• Rothman focused on high military
• Allan Fisher/Collin Clark 3 sector
• Primary: agriculture
• Secondary manufacturing
• Tertiary serving

Shortcomings of the model:

• Failed to incorporate rapid declining rates, oversimplified, Kuznetz states growth is never guaranteed.
• The Harrod Domar model increased in savings due to technological increases and policy makers
• H-D MODEL OR AK MODEL; g=s/c g = rate of growth in national income s = savings rate; c= capital rate

Lewis Model

• One of the best models to explain economics from sir William Author Louis
• Useful in labor transition
• Includes modern and transitional factors.

International Dependence Revolution

• Dependence due to country limitations.

The Model

• Stream of thought focused on the Neocolonial Dependence Model
• Dualistic development (Existence & persistence increasing divergence between rich and poor people and nations.)
• May and increase productivity gap between sectors.

Neoclassical counter revolution

• Focused on the dependence of the internal state system, but due to the poor economic strategies.

Economic Growth Theories

Solow Growth

Model to sustain economics- Technological differences that can be explained by Stock capital (endogenous K)

• Labor force (endogenous L)
• Technology EXOGENOUS(T)

Capital Labor

• 𝑌 = 𝐾𝐴𝐿−1, Y is national income or GDP. K, labor of productivity A, a is between 0 to 1, K&L

Capital accumulator

• Capital Deepening - increase the amount of capital per worker (increase in K given L)
• Capital Windening- equipping of new workers

Numerical Example

• Is that Investment is capital accumation or 𝑑t = i 1dL dt
• Labor will grow with the constant of rate n: 𝐿 𝑑t=n, n=3

Extensive vs Inter Margin

Innovation

• Transitive for innovation but now in technology because of differences across countries.
• High pay off in the Philippines