Is agriculture still key in developing economy context?

By: J.C. BHAGWANDIN, M.Sc.

Agricultural, rural development and industrialisation:

Guyana is regarded as a country with vast agricultural potential. In fact, it is often said that Guyana is, or can be, the food basket for the Caribbean; yet, the Caribbean Community food import bill will reach close to US$10 billion by 2020, more than two and a half times Guyana’s GDP.

Today’s article examines this thematic construct by reviewing the empirical literature that exists around studies with respect to agriculture as a pillar of economic development. Forthcoming articles will therefore contextualise this empirical evidence in the case of Guyana.

The past 20 years have witnessed a steep decline in the availability of public resources for agriculture and rural development. Between 1983 and 1987, and 1998 and 2000, the annual average allocation of official development assistance (ODA) for agriculture in the least developed and low-income countries fell by 57 percent, from US$5.14 billion (2002 prices) to US$2.22 billion.

Lending from international institutions followed a similar pattern, while domestic public spending has remained stagnant at best. The result has been reduced incentives for rural investment.
Serious questions have also been raised regarding the efficiency and effectiveness of public resources’ mobilisation for agriculture and the rural space.

An important question in the debate regarding rural development has been the relationship between agriculture and the rural economy. In certain respects, past policy perceptions and practices have often equated to rural development with agriculture, and rural development policies have been subsumed under an agriculture policy package.

The issue of how and under what conditions agriculture is a driving force of rural growth has received scant attention, or has given mixed messages, including on the position of major multilateral financing institutions.

Recently, however, the emergence of national and international commitments on poverty and related targets — for example, the Millennium Development Goals and the Poverty Reduction Strategies at the country level — coupled with the failure of past paradigms to achieve mass reductions in rural poverty, has given new impetus to the role of agriculture in development and poverty reduction; while, at the same time, new rural development models have emerged –in Latin America, for example — emphasising a broader approach, in which rural and urban spaces are viewed as a continuum and their interactions are emphasised.

The Importance of Agriculture in Development: historical perspectives
As early as the beginning of the 20th century, economists observed that wealthier countries were characterised by a smaller portion of their input coming from agriculture and relatively less labour resources tied to the same sector.

They also noted that the process of development itself was characterised by a monotonic decline in the relative importance of agriculture and the primary sector in the economy, both in terms of GDP and employment.

Therefore, if the process of development is characterised by a shrinking agricultural sector, should the development “recipe” then suggest policies that are biased against agriculture and in favour of other sectors of the economy, to accelerate development?

Or should agricultural growth be promoted to facilitate this structural transformation? History would show, to this end, that the policies that developing countries implemented from the late 1950s until the late 1980s (particularly in Africa and Latin America) had apparently followed the first strategy.

Proponents argued that the primary sector, though passive, played an important role in development. Some active roles the agricultural sector performs throughout development include

(1): Agriculture provides food necessary for a growing economy, as food demand, although at a decreasing rate, grows with income. (2): Agricultural exports generate the foreign exchange necessary to import capital goods. (3): Agriculture, as the larger sector in less developed countries (LDCs), is the only sector capable of generating the savings mass that the non-agricultural sector needs for capital accumulation; and (4): a growing agricultural sector creates a larger stock market for the non-agricultural sector. These linkages still remain relevant for developing economies with a large primary sector, like Guyana.

Empirical evidence also shows that successful industrialisation experiences are usually preceded by periods of dynamic agricultural growth. For example, countries that embark on a successful industrialisation path first experience fast agricultural expansion, fuelled not by absorbing resources from the rest of the economy, but by rapid increases in productivity.

Among the countries that experienced this are the Asian giants India and China, with fast industrialisation preceded by fast productivity growth in the agricultural sector.