Agricultural Development and Economic Transformation: Promoting Growth with Poverty Reduction John W. Mellor Model to measure impact of rapid agr. growth on: Speed of economic transformation Diffusion of Urbanization Poverty reduction Compare 6% and 3% agr. growth rates

KEY FEATURES THE INSTRUMENT OF MODERNIZATION The Small Commercial Farmer Half the households; 3/4s the farm production Not poor – a problem THE MECHANISM OF TRANSFORMATION AND POVERTY REDUCTION Small Commercial Farmer spends half of increments to income on the rural non-farm (poor)sector The only source of demand for the output of the rural non-farm sector

Table 3. 1 Sectorial Employment and Income Growth Rates with a 6 Table 3.1 Sectorial Employment and Income Growth Rates with a 6.0 Percent Rate of Growth of the Agricultural Sector, Ethiopia Sector Base Employment % Growth GDP% Employment elasticity Employment Growth % Incremental Employment % Small Commercial Farming Households 37 6 0.3 1.8 18 Rural Non-farming Households 43 5.7 0.9 5.1 60 Rural Households, Total 80 5.5 0.6 3.6 78 (64) Urban Households, Total 20 8 0.5 4.0 22 (36) TOTAL/AVERAGE 100 6.4 (4.7) 3.7 (2.2)

OVERVIEW. Rapid Agricultural growth In Low income country Dominates poverty reduction Dominates income growth Cereals tend to dominate growth In Middle income country Important but not dominant for income growth Fast growth dominated by livestock, horticulture and exports – rarely happens

OVERVIEW (Continued) The Economic Transformation 6% growth rate agriculture , low income country 60% employment growth rural non-farm Twice the share of urban sector Market town growth large part of urbanization Rate of employment growth 2/3rds higher than with 3% growth Relationships comparable for middle income country

KEY FEATURES (Continued) The Engine of Agricultural Growth Continuous cost reducing innovation Public Sector research/extension institutions The Facilitator of agricultural growth Continual growth in Public Sector rural infrastructure Continual growth in Public Sector rural education Why poor performance The engine/facilitator grossly inadequate Lack of focused national plan

DEPARTURES FROM CONVENTIONAL WISDOM 1. IN LOW INCOME COUNTRIES CEREALS PRICES DO NOT DECLINE WITH RAPID GROWTH: Large rural poor population with relatively elastic demand for cereals Demand from prospering Small Commercial Farmers 89% of incremental cereals production consumed in rural areas. 65% by rural non-farm Rural poor cereal consumption grows at 4.2% Rapid increase in food security As demand by poor becomes more inelastic livestock consumption accelerates.

DEPARTURES FROM CONVENTIONAL WISDOM (Continued) 2. WITH MODERNIZATIOIN FARMERS WIFE LOSES INLFUENCE Change in knowledge source from village to external Institutions need not exclude wives (and female headed households (FHH) Example: Organize demonstrations to include wife and FHH Impact substantial Poorer farm decisions in many households Women capabilities not tapped for modern institutions (e.g. coops) Lower capability in RNF sector

DEPARTURES FROM CONVENTIONAL WISDOM (Continued) 3. GROSSLY INADEQUATE EXPENDITURE ON RESEARCH AND INTEGRATION OF EXTENSION Often one-sixth of reasonable target (DATA) Greatest comparative advantage of foreign aid Scarcity of highly trained requires far more support per Research must lead extension

DEPARTURES FROM CONVENTIONAL WISDOM (Continued) 4. RECENT FOREIGN AID HAS ENSURED THAT THE SMALL COMMERCIAL FARMER LACKS ACCESS TO FINANCE! High income countries have a specialized quasi public institution for SCF All early starting Asian countries have African and late Asian countries do not Foreign aid did not like overdues of Asian countries and killed the golden goose Cuts modernization by a third

DEPARTURES FROM CONVENTIONAL WISDOM (Continued) 5. ESSENTIAL THAT THE PRIME MINISTER BACK A NATIONAL AGRICULTURAL GROWTH PLAN Modern low and middle income country governments are urban oriented Need to mobilize support of small commercial farmers Need support of urban population Need to motivate government officials

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