2. Economic Deveopment and Structural Transformation of Agriculture : Issues and Prospects Jung-Hwan Lee Vice-president, KREI

3. Contents Contents 1. Introduction 1. Introduction 2. Agriculture in the Korea Economy 2. Agriculture in the Korea Economy 3. Transformation of Agricultural Production 3. Transformation of Agricultural Production 4. Transformation of Agricultural Employment 4. Transformation of Agricultural Employment 5. Transformation of Farm Land Transfer 5. Transformation of Farm Land Transfer 6. Concluding Remarks and Implications 6. Concluding Remarks and Implications

4. ` `  Three Dimensions of Agricultural Adjustment  Transformation of Agricultural Production from Traditional Commodities to Highly Income-Elastic and Exportable Commodities - Agricultural Growth Constrained by Supply-Side Factors in LICs by Demand-Side Factors in HICs Ⅰ. Introduction

5.  Reallocation of Labor Forces from Agriculture to Non-agriculture - Regulated by Job Change, Natural Factors, New Entrants  Transfer of Farm Land Operationship form Small-Sized Farms to Large-Sized Farms

6. ` ` 1. Transformation of Industrial Structure Ⅱ. Agriculture in the Korea Economy  Agricultural Share has been Declining  Trans. Point A Agriculture Service  Trans. Point B Agriculture Manufacture  A & B in Production ⇒ PA, PB A & B in Employment ⇒ EA, EB ≤ ≤

7. Figure. Trans. of Industrial Structure in Korea Source: EPB. Annual Survey Report on the Economically Active Population Survey.

8. Figure. Trans. of Industrial Structure in Korea Source : Bank of Korea(BOK), National Account.

9.  Sequence of Transformation in Korea Table. Four Transformation Points & Time Lag Unit:% (Year)

10.  International Comparison - Production Share

11.  International Comparison - Employment Share

12. Table. The Year When the Ag.l Employment Ratio Reached 40 and 16 Percent

13. Table. The Year When the Ag. Pro. Share Reached 40 and 7 Percent - Transformation Point

14. Table. Agricultural Share at Trans. Points Source : Lee and Timmer(1993) Unit: %

15. - Time Lag between PA & EA, PB & EB Table. Time Lag in Industrial Trans.

16. 2. Productivity Difference  Proty Rate(Ag. Proty / Ag. Proty) in Korea Figure. Productivity Difference between Sectors

17.  International Comparison  Kuznets(1971) - Productivity Difference Decreases Chenery(1986) - U-Shape Ohkawa(1973) - Productivity Difference Increases

18.  Industrial Structure & Turning Point

19. High Growth 1970/72 ∼ 1975/77 5.8% ` ` Ⅲ. Transformation of Agricultural Production 1. Agricultural Growth in Korea  Phases of Agriculture Growth Slow Down 1975/77 ∼ 1986/88 1.1% Negative Growth 1986/88 ∼ 1990/92 -0.6% Recovery 1990/92 ∼ 1995/97 2.2%

20.  Contribution Rate by Commodity - High Growth by Rice & Vegetable, 4.4%, 12.4% - Slow Down by Rice & Grains, 0.2%, -5.0% - Negative Growth by Rice & Grains, -1.7%, -5.8% - Recovery by Vegetable & Livestock 4.6%, 6.7%

21. 2. Transformation of Production  Life Cycle of Demand for Agricultural Commodities - Luxury Goods ⇒ Common Goods ⇒ Inferior Goods  Life Cycle of Supply for Agricultural Commodities - Land Productivity ⇒ Labor Productivity - Mechanization or HVA Commodities

22. Figure. Growth of Land and Labor Productivities in korean Agriculture  Korea Failed in Timely Transformation of Agricultural Production

23. Ⅳ. Transformation of Agricultural Employment 1. Paths of Transformation of Employment Structure Three Paths of Transformation Death & Retirement Allocation of New Entrants Allocation of New Entrants Job Change

24.  Job Change of Current Farm Labor Forces Table. Rate of Job Change from Ag. to Non-Ag. unit : % Source : Lee and Timmer (1993).

25. - Rate of Job Change by Age Group Table. Rate of Job Change of Agricultural Labor Force by Age unit : % - U-turn from Non-Agriculture

26.  Sources of Decrease in Agricultural Labor Force: Dominated by Natural Factors Table. Sources of Decrease in Agricultural Labor Force unit : % Source : Lee and Timmer (1993).

27. 2. Trans. of Age Structure of Ag. Labor Force  Age Profile Curve shows Agricultural Share of Employment by Age Group Figure. Shift of Age Profile Curve of Ag. Labor Force in Korea - Share of New Entrant decrease more Fast - Job Change of Current Labor is very Low

28.  Britain's Experience Figure. Shift of Age Profile Curve of Ag. Labor Force in Britain Source: Lee and Timmer(1993).

29.  International Comparison Figure. Age Profile Curve of Ag. Labor Force: International Comparison in 1975 Source: Lee and Timmer(1993).

30. Figure. Age Profile Curve of Ag. Labor Force: International Comparison in 1975 Source: Lee and Timmer(1993).

31. ` ` Ⅴ. Transformation of Farm Land Transfer 1. Urban Land Market and Farm Land Price  High Economic Growth Rate ⇒ Spurting Land Prices & Demand in Urban Areas ⇒ Increases of Farm Land Prices PA : Farm Land Price, RA : Farm Rent PN : Urban Land Price

32. Table. Land Price Index and Rate of Return to Farm Land in Korea Source : Lee J.H. et al. (1990), p.63.

33.  International Comparison Table. Rate of Rent Returns to Farm Land : International Comparison. Unit: % 1. * denote 1960 and 1980, respectively. Source : EUROSTAT and Dewit(1983). Lee J.H. et al. (1990), p.63.

34. 2. Development of Farmland Tenure System  Land Reform Act(1949) - Farmland Distributed to Resident Farmers on an Equity Basis - 91.9% of Total Farmland Att. to Owner Farms  Tenant Farms Expanded since LRA - Tenant Farming Area : 43.5% in 1997 - Farmland Transfer Depends on Lease

35. Table. Changes in Farm Size and dependence on Leases: A Case Study unit: % Source : Lee and Kim. (1984), p.69 and 75. For 1985-90, Lee, D.H. et al. (1990).

36.  Large-Sized Farms Depends on Lease Figure. Changes in Share of Rented Area by Farm Size Source: MAF, Agricultural Census.

37. Figure. Changes in Share of Rented Area by Farm Size Source: Koreanaga(1991), p. 155

38. Figure. Changes in Share of Rented Area by Farm Size Source: MAF, Agricultural Census.

39.  International Comparison Figure. Share of Rented Area by Farm Size in Developed Countries Sourece: Korenage(1991), p. 151  Why Lease is Prevailing? - High Farmland Price - Requirement of Farm Size Enlargement

40. 3. Transformation of Farm Size Distribution  Four Phases of Size Distribution in Korea - By the mid-1960s Polarization - By the beginning 1980s Mid-size Concentration - From the beginning 1980s Upward Tilt - From the end 1980s Polarization Revived Figure. Changes in Farm Size Distribution in Korea

41.  International Comparison  (Polarization) ⇒ Mid Size Concentration ⇒ Upward Tilt ⇒ Polarization Figure. Changes in Farm Size Distribution in Japan Source : MAF, Statistical Yearbook on Agriculture and Forest

42. Figure. Change in Farm Size Dist. in Netherlands Source: W.Huizinga & D. Strijiker(1986) and Erostat.

43.  Why Farm Size Dist Transformed? - In the Initial Stage of Economic Development Non-ag Employment Limited 2nd or 3rd Sons Turn very Small Size Owner / Tenant Farms or Laborers Large Size Farms depend on Cheap Laborers - Progress Stage of Economic Development Non-ag Employment Increases 2nd or 3rd Sons not Create New Farms Large Sized Farms Lease within Capacity of Family Labor(Cheap Farm Laborers not Available)

44. - Developed Stage Farm Mechanization Proceed and Part-Time Farming Available Large Size Farms Can Pay High Rent Large Size Concentration, Small Size Farms Sustain Table. Farm Size and Production Cost

45. ` ` 1. Transformation Process of Agricultural Structure Ⅱ. Agriculture in the Korea Economy

46. 2. Implications  Hardship of Developing Countries  New Income-Elastic Commodities Should be Developed before Demand for Traditional Stage Crops Slows Down  Job-training and Retirement Program Should be Conducted to Boost Reallocation of Labor Force  Farmland Lease System Should be Developed to Promote Farmland Transfer

47. Thank you! Korea Rural Economic Institute http://www.krei.re.kr belmont@krei.re.kr