Oda bultum University Development Economics II Lecture Note

Chapter Four
Agriculture and Economic Development
“The discovery of agriculture was the first big step toward a civilized life.”
-Arthur Keith-

Objectives
 After completing this unit, students will
o Be able to understand importance of agricultural development in overall
economic development of a nation.
o Know the structure of agrarian systems in the developing world.
o Be able to identify the important role of women in agricultural production.
o Be able to understand the economics of agricultural development.
o Identify strategies of agricultural and rural development.

Introduction
 This chapter is about agriculture and economic development. Agriculture and
development of a nation in general and rural development in particular are highly
interconnected. Today more than 45 percent of World populations live in rural areas
in. In Africa, the ratios are much higher, with most countries having rural dwellers
in excess of three-quarters of the total population.

 Traditionally, the role of agriculture in economic development has been viewed as

passive and supportive. As ale was result, to provide a sufficient low-priced food and
manpower to the expanding industrial economy. These days, agricultural development
has come to be seen by many as the essential condition of national development. Without
such integrated agricultural development, industrial growth either would be dampened
or, if it succeeded, would create such severe internal imbalances in the economy that the
problems of widespread poverty, inequality, and unemployment would become even
more pronounced.

1. Agriculture and Development

 Any economy can be broadly divided into three sectors, namely, primary, secondary and
tertiary sectors.
 Agriculture is the most important constituent of the primary sector. The primary
sector consists of agriculture (including forestry and animal husbandry), mining
and fishing. The secondary sector contains all types of industries. The tertiary
sector represents the service sector which includes banking, transport, insurance,
trade and other services.

 Over two-thirds of the world’s poorest people are also l engaged primarily in subsistence agriculture.
Millions of these people do not have
enough food to meet their basic nutritional needs. Their behavior January have often
seemed irrational to many observers. If development is to take place and become self-

1
Sustaining, it will have to include the rural area in general and the agricultural sector in
particular.

 Development economists have come to realize that the agricultural sector in particular
and the rural economy in general must play an indispensable part in any overall
strategy of economic progress, especially for the low-income developing countries.
o to a large extent, therefore, agricultural and rural development has come to
be seen by many as the essential condition of national development. Without
such integrated rural development, industrial growth either would be
dampened or, if it succeeded, would create such severe internal imbalances
in the economy that the problems of widespread poverty, inequality, and
unemployment would become even more pronounced.

 If we look at the history of economic development of various advanced nations, we find

something in common in their development.
o It is that the development of their secondary sector and also of the tertiary sector to
some extent was preceded by the development of agriculture. England, for example,
relied heavily on its domestic agriculture in the early phases of its industrial
development. In most of the western European countries such as France, Belgium,
Germany and Sweden their development rested up on a firm base of rising
agricultural productivity. The most developed country of Asia –Japan - also owes its
present economic position to the development of agricultural sector in the pre
modern industrialization period. The fact of the matter is that in case of most of the
present developed nations or those which have embarked on the development path,
it is the development of agriculture that has laid the foundation of development of
the other sectors of their economies. This is especially so for those economies which
have tried to develop themselves through internal sources in the initial stages.

 The main contributions of agriculture to development are illustrated as follows:

1. Factor Contribution
o Development of agriculture releases some resources for being transferred to the
other sectors. As these resources are productive in nature we call the transfer of these
resources to the non- agricultural sectors as factor contribution of agriculture. The
resources transferred are capital and labor including human capital.

Provision of Capital: The nonagricultural sectors require funds for acquiring

material capital. In the initial stages of their development, these funds will be
generated in the agricultural sector and then transferred to the other sectors. In a
closed economy in the initial stages, it is the agricultural sector which commands
most of the income, capital and also labor. Even when an underdeveloped economy
is an open economy, the outside source of capital like foreign aid or foreign
commercial investment can make only a limited contribution to the economic
development.

Provision of Labor: Another factor contribution of agriculture towards economic

development is through the release of labor by the agricultural sector for the non-
agricultural sectors. There are three potential sources of labor supply for the

2
developing non-agricultural sectors. These are natural population growth, immigration and
farm population. The supply of labour from the first two sources can never be
smooth and adequate. Supply through population growth will be very slow in
coming forth.

However, it January be noted that movement of farm labour to the non-agricultural

sectors is not always easy. Transfer of labour from the agricultural sector to the
developing non-agricultural sectors January not create a serious problem in over
populated countries. There is already a surplus labour force in the agricultural sector
of these countries and it can be easily drawn in to the industrial sector without any
fall in agricultural output. The problem is more serious in sparsely populated
countries. There is no disguised unemployment there and any shifting of labour
from agricultural production. However, a country moving in the development path
cannot afford such a fall in agricultural production because of various reasons.

2. Product Contribution
o Product contribution deals with direct food and raw materials contribution of the
agricultural sector.

Food Contribution: In most developing countries, the domestic agricultural sector is

the principal source of food for consumption by non-agricultural workers. When the
non-agricultural sectors are to be developed, people will have to shift from
agriculture to various occupations in these sectors. But they will require food for
their subsistence even after shifting to new sectors.

Provision of Industrial Raw Materials: The other product contribution made by

agriculture for the development of the non-agricultural sectors of the economy,
especially the secondary sector, is in the form of provision of raw materials. A study
of the history of industrial development of advanced nations shows that the agro-
based industries were the first to develop in such countries.

3. Market Contribution
o This contribution focuses on the flow of goods generated by the development of the
agricultural sector-flow which helps the development of the other sectors. This
contribution can take various forms:

Expanded market for the products of other sectors: Agriculture provides an

expanding market for the products of the other sectors in the initial stages of
development of the economy. Agricultural sector, while helping the development of
the other sectors, also finds the income of its people increasing. This increased
income, in turn, leads to an additional demand for the products of other sectors, not
only for consumption purposes but also for production.

Flow of Agricultural products to other sectors of the economy: As agriculture

develops and its production becomes more market oriented, many other institutions,
generally non-agricultural in character, come in to existence. These institutions
include those providing processing, packing and distribution services.

3
Oda bultum University Development Economics II Lecture Note
Development of International Trade: Surplus products from the agricultural sector,
as a result of its development, can move to the international market. This, in turn,
can result in the flow of necessary capital as well as consumer goods from outside.
The growth process of the economy as a whole can thus gain momentum. So, we can
say that in the case of development of international trade, agriculture combines
market contribution with factor contribution for the development of non-agricultural
sectors.

4. Foreign Exchange Contribution.

The description of the above mentioned contributions of agriculture to the development of
non-agricultural sectors will have complete empirical validity only if the economy under
consideration is a closed economy. In an open economy also the agricultural sector has
contributions for foreign exchange earnings.

2. The Structure of Agrarian Systems in the Developing World

 World agriculture comprises two distinct types of farming:
o (1) The highly efficient agriculture of the developed countries, where substantial
productive capacity and high output per worker permit a very small number of
farmers to fed entire nations.
o (2) The inefficient and low-productivity agriculture of developing countries, where
in many instances the agricultural sector can barely sustain the farm population, let
alone the quickly increasing urban population, even, at a minimum level of
subsistence.

 The gap between the two types of agriculture is immense.

o This is best illustrated by the disparities in labor productivity.
 In 1960, agricultural labor productivity in developed countries was more than 13
times that in the less developed countries.
 By 2000, this productivity gap had widened to more than 50 to 1.
o Another manifestation of the productivity gap relates to land productivity. In 2000,
variations in land productivity (measured as kilograms of grain harvested per
hectare of agricultural land) between developed countries and developing countries
is also immense.
 For example, despite the far smaller number of farm workers per hectare in
the United Kingdom, its grain yield per hectare was 3 times that of India, 6
times that of Nigeria, and almost 12 times that of Sudan.

 In the developed countries, there has been a steady growth of agricultural output since the
mid-eighteenth century.
o This growth has been spurred by technological and biological improvements, which
have resulted in ever-higher levels of labor and land productivity. For example, in
1820 an American farmer could produce only four times his own consumption. By
2000, a single American farmer could provide enough food to feed nearly 100
people. Moreover, during the entire period, average farm incomes in North America
rose steadily.

 The condition is different when we turn to the agricultural production experience of low-
income nations.

4
Oda bultum University Development Economics II Lecture Note
o In many poor countries, agricultural production methods have changed relatively
slowly over time. Where fertile land is scarce, rapid population growth has led to an
increase in the number of people living on each unit of land. Given the same farming
technology and the use of traditional non-labor inputs (e.g., simple tools, animal
power, traditional seeds), we know from the principle of diminishing returns that as
more and more people are forced to work on a given piece of land, their marginal
(and average) productivity will decline. The net result is a continuous deterioration
in real living standards for rural peasants in some area.

 A common characteristic of agriculture in all developing regions (Latin America, Asia, and
Africa) is the position of the family farm as the basic unit of production.
o Agrarian systems in many parts of Asia and Latin America show more structural
and institutional similarities than differences, and subsistence farmers in all three
regions exhibit many of the same economic behavior patterns.

 The experience of Under Developed Countries was very different. Their agriculture sector is
furnished with following characteristics:
1. There is a scarcity of fertile land.
2. There is a big pressure of labor on lands because of rising population.
3. There is a reduced use of agri. tools and machinery on farms.
4. The farming and cropping technologies are very outdated.
5. The marginal productivity goes on to fall due to operation of diminishing returns.
6. There is traditional subsistence farming which is furnished with risk and
uncertainty.
7. The agriculture lands are prey to water logging and salinity.
8. The farmers fail to get a reasonable remuneration against their crops.

 In such state of affairs the standard of living of the rural peasants is continuously
deteriorating, as a result billions of farmers are prey to starvation.

A-The Structure of Agrarian Systems in Latin America

o The agrarian structure that has prevailed in Latin America since colonial times and
has provided much of the region with its social organization is the pattern of
agricultural dualism known as latifundio-minifundio.
 Latifundios are very large landholdings. They are defined in Latin
America as farms large enough to provide employment for more than 12
people, though some employ thousands.
 Minifundios are the smallest farms. They are defined as farms too small
to provide employment for a single family (two workers) with the typical
incomes, markets, and levels of technology and capital prevailing in each
country or region. According to the FAO, 1.3% of landowners in Latin
America hold 71.6% of the land under cultivation.

o The economic and social ramifications of heavy land concentration in the hands of a
few large landowners are compounded by the relative inefficiency of latifundios in
comparison with other Latin American farm organizations.
 Some economists have assumed that large farms (or firms) use productive
resources more efficiently than small ones on the grounds that large

5
enterprises can take advantage of economies of large-scale production and thereby lower costs.

o However, evidence from a wide range of developing countries, however,

demonstrates that small farms are more efficient (lower-cost) producers of most
agricultural commodities. For example, minifundios in Argentina, Brazil, and Chile
yield more than twice the value of output per hectare under cultivation than the
latifundios and more than 10 times the value per hectare of total farmland.

o The explanation lies in the poor utilization of productive farm resources in land
resources on latifundios.

 A major explanation for the relative economic inefficiency of farming the

fertile land on the latifundios in comparison with minifundios is simply
that the wealthy landowners often value these holdings not for their
potential contributions to national agricultural output but rather for the
considerable power and prestige that they bring. Much of the land is left
idle or farmed less intensively than minifundios.

B-The Structure of Agrarian Systems in Asia

o As opposed to the major agrarian problem of Latin America as too much land under
the control of too few people, the basic problem in Asia is one of too many people
crowded onto too little land.
 For example, the per capita availability of arable land in 1994 in India, China,
and Bangladesh was 0.19, 0.08, and 0.07 hectares, respectively.

o Gunnar Myrdal identified three major interrelated forces that molded the traditional
pattern of land ownership into its present fragmented condition:
o (1) the intervention of European rule, (2) the progressive introduction of
monetized transactions and the rise in power of the moneylender, and (3) the
rapid growth of Asian populations.

o The arrival of the Europeans (mainly the British, French, and Dutch) led to major
changes in the traditional agrarian structure, some of which had already begun. As
Myrdal points out, "Colonial rule acted as an important catalyst to change, both
directly through its effects on property rights and indirectly through its ef-fects on
the pace of monetization of the indigenous economy and on the growth of
population." In the area of property rights, European land tenure systems of private
property ownership were both encouraged and reinforced by law.

o The ultimate impoverishment of the peasantry was the inevitable consequence of

this process of fragmentation, economic vulnerability, and loss of land to rich and
powerful landlords.

C-The Structure of Agrarian Systems in Africa

o Subsistence farming on small plots of land is the way of life for the vast majority of
African people. However, the organization and structure of African agricultural
systems differ markedly from those found in contemporary Asia or Latin America.

6
Oda bultum University Development Economics II Lecture Note

o The great majority of farm families in tropical Africa plan their output primarily for
their own subsistence. Since the basic variable input in African agriculture is farm
family and village labor, African agriculture systems are dominated by three major
characteristics: (1) the importance of subsistence farming in the village community;
(2) the existence of some (though rapidly diminishing) land in excess of immediate
requirements, which permits a general practice of shifting cultivation and reduces
the value of land ownership as an instrument of economic and political power; and
(3) the rights of each family (both nuclear and extended) in a village to have access to
land and water in the immediate territorial vicinity, excluding from such access use
by families that do not belong to the community even though they January be of the
same tribe.

o The low-productivity subsistence farming characteristic of most traditional African

agriculture results from a combination of three historical forces restricting the
growth of output:
1. In spite of the existence of some unused and potentially cultivable land,
only small areas can be planted and weeded by the farm family at a time
when it uses only traditional tools. In some countries, use of animals is
impossible because of the notorious tsetse fly or a lack of fodder in the
long dry seasons, and traditional farming practices must rely primarily
on the application of human labor to small parcels of land.
2. Given the limited amount of land that a farm family can cultivate in the
context of a traditional technology and the use of primitive tools, these
small areas tend to be intensively cultivated. As a result, they are subject
to rapidly diminishing returns to increased labor inputs. In such
conditions, shifting cultivation is the most economic method of using
limited supplies of labor on extensive tracts of land. Under shifting
cultivation, once the minerals are drawn out of the soil as a result of
numerous cropping’s, new land is cleared, and the process of planting
and weeding is repeated. In the meantime, formerly cropped land is
allowed to recover fertility until it can be used again.
3. Labor is scarce during the busiest part of the growing season, planting
and weeding times. At other times, much of the labor is underemployed.
Because the time of planting is determined by the onset of the rains and
because much of Africa experiences only one extended rainy season, the
demand for workers during the early weeks of this rainy season usually
exceeds all available rural labor supplies.

 The net result of these three forces had been a relatively constant level of agricultural
total output and labor productivity throughout much of Africa.

 Of all the major regions of the world, Africa has suffered the most from
its inability to expand food production at a sufficient pace to keep up
with its rapid population growth.24 As a result of declining production,
African per capita food consumption fell dramatically during the 1980s
and I990s while dependence on imports-particularly wheat and rice-
increased.

7
Oda bultum University Development Economics II Lecture Note
3. The Important Role of Women in Agricultural Production
 A major and often overlooked feature of LDC agrarian systems, particularly in Africa and
Asia, is the crucial role played by women in agricultural production.
o in Africa, where subsistence farming is predominant and shifting cultivation
remains important, nearly all tasks associated with subsistence food production
are performed by women.
o Although men who remain home generally perform the initial task of cutting
trees and bushes on a potentially cultivable plot of land, women are responsible
for all subsequent operations, including removing and burning felled trees,
sowing or planting the plot, weeding, harvesting, and preparing the crop for
storage or immediate consumption.
o in her pioneering work on women and development, Ester Boserup found, in
some cases, women do around 70% and in one case nearly 80% of the total
agricultural work.

 Women provide an important source of labor for cash crop production, cultivate food for
household consumption, raise and market livestock, generate additional income through
cottage industries, collect firewood and water, and perform household chores, including the
processing and cooking of foods.
o Due to the time-consuming nature of their diverse responsibilities, women tend
to work longer hours than their male counterparts.
o Studies concerning the allocation of women's time among different activities
have greatly increased recognition of the importance of rural women's economic
contribution.
o Current estimates show that in addition to work within the household, women
provide 60%to 80% of agricultural labor in Africa and Asia and about 40% in
Latin America. Much of this work, however, is statistically "invisible" in that
women often receive no payment for the work they perform. These facts imply
that successful agricultural reform will require raising women's productivity.

 The active participation of women is critical to agricultural prosperity; policy design should
ensure that women benefit equally from development efforts.

Women and Micro finance

According to Juan Somavia, ILO Director-General, “Microcredit plays a critical role in
empowering women, helps deliver newfound respect, independence, and participation
for women in their communities and in their households.”

Microfinance is a source of financial services for entrepreneurs and small businesses lacking
access to banking and related services. The modern use of the expression "microfinancing"
has roots in the 1970s when organizations, such as Grameen Bank of Bangladesh with the
microfinance pioneer Muhammad Yunus, were starting and shaping the modern industry
of microfinancing.

8
Oda bultum University Development Economics II Lecture Note
4. The Economics of Agricultural Development
 In respect of agricultural production and development, the economists present three stages,
which are:
(1) The subsistence farming: It is most primitive type of farming which is characterized
with low productivity and the produced output is just for the sake of subsistence.
(2) The mixed farming: Where the farmers not only produce for their personal
consumption but also for the sale in the market.
(3) The commercialized farming: In such stage of farming the agricultural productivity
is higher and whole of the produced output is sold in the market.

Stage I: Subsistence Farming

 This type of farming has following salient features:
(i) Most of the output is produced for family consumption.
(ii) The production is mostly consisted of a few staple food crops like wheat, barley,
sorghum, rice and corn etc.
(iii) The traditional methods and tools are used - leading to a lower level of output
and productivity.
(iv) Land and labor are the only factors of production, and the capital investment is
minimal. Accordingly, law of diminishing return applies in agriculture sector as
more labor are employed with fixed lands.
(v) The farmers are always worried of inadequacy of rains.
(vi) The agriculture labors are fully employed during planting and harvesting
seasons while they remain unemployed during most of the year.
(vii) The peasants cultivate only that much of land which they could manage without
hired labor.
(viii) The agricultural environment is mostly tough, harsh and static.
(ix) Technological limitations, rigid social institutions, fragmented markets and
reduced communication net-work between rural areas and urban centers often
inhibit the higher level of production.
(x) The farmers are surrounded by uncertainties. They just want to survive. Thus
because of rigid behavior, poverty and illiteracy the farmers exist in the
atmosphere of uncertainty.
(xi) Subsistence farming is highly risky and uncertain venture. They resist the use of
new techniques, new seeds and new machinery on farms because they do not
want to put their lives at stake.
(xii) The farmers are hardly aimed at maximizing their profits; they are just desirous
to save their families from starvation.

Risk and Uncertainties

 There are different conditions in which decisions are made: certainty, risk and
uncertainty.
o Certainty is a condition under which the decision maker is well informed about
possible alternatives and their outcomes. There is only one outcome for each
choice.
o Risk: In such a condition, decision makers have knowledge about alternative
course of actions but outcomes are associated with probability estimates.
o Uncertainty: It occurs when decision makers are unaware of the problem they

9
Oda bultum University Development Economics II Lecture Note
Face. They do not know all the alternatives, the risk associated with them or the likely
consequences of each alternative.
 Under conditions of risk, the decision maker can make a list of all possible outcomes and
assign probabilities to the various outcomes. Uncertainty exists when a decision maker
cannot list all possible outcomes and/or cannot assign probabilities to the various
outcomes.

Stage II: Mixed or Diversified Farming

 The mixed farming is a first step to commercialized farming from subsistence farming.
 In such stage of agriculture development, the cash crops like vegetables, tea,
coffee, cotton and fruits are produced, rather staple foods. In addition to these
the dairy and live stocks are developed.
 Those labor which remained unemployed during the major part of the year go on
getting employed. In this way, the demand for labor goes on to increase on the
farms, particularly at the time of harvesting and sowing. This leads to increase
the real wages of farm labor.
 In such situation the tractors and threshers are used to substitute labor. In order
to boost the staple crops, the fertilizers are used. Along with the more production
of foods the stress is laid upon to produce more of cash crops.
 In this way, the agricultural sector goes on to earn 'Surplus'. With such surplus the
farmer can uplift the standard of living of its family.

 When mixed or diversified farming starts the farmers somehow are prepared to take risks.
 But all this depends upon the abilities and competence of the farmers as well as on the
social, commercial and institutional setup where the farmer resides.
 The agriculture history of Pakistan, India, Philippine. Columbia, Mexico and
Nigeria confirms that if the farmers are sure of the profits they are prepared to
move from subsistence farming to Mixed farming.
 The use of better seeds, fertilizers, and simple irrigation devices will not only
enhance the production of staple crops but it will also lead to free the land which
would now be available for cash crops. The farm surplus can also be used to
make investment in the farms.

 Thus, we conclude that the transition from subsistence farming to diversified farming
depends upon reasonable and reliable access to credit, fertilizers, water, crop information,
and marketing facilities, fair market price for agri. produce and provision of extensive
services.

Stage III: Specialization/Modern and Commercial Farming

 In the free market economy, the specialized farming is the last and final stage in
agricultural development.
o It is the most prevalent type of farming in advanced industrial nations.
o It comes into being along with the development of other sectors of the economy.
The biological and mechanical changes, improvement in living standard of the people and
extension in domestic and foreign markets played an important role in such type of farming.

10
Oda bultum University Development Economics II Lecture Note
o In such farming it is the motive of profit which plays an important role, rather
than the personal needs for foods.

 The followings are the common features of specialized farming or commercialized farming:
(i) A single crop is produced from these farms ranging from staple crops, cash crops,
vegetables and fruits.
(ii) The agriculture technology applied on such farms is of capital-intensive or labor-
saving nature.
(iii) The farmers (big) rely upon economies of scale to reduce their costs of production
and maximization of profits.
(iv) The big and specialized farms are in no way different from big industrial concerns.
In certain cases, such farms known as 'Ranches' are owned or controlled by large
agri. business multi-national corporate enterprises.

 The followings are the implications of such commercialized farming:

(a) When one crop is produced and cultivated the economies of scale will be accrued
and the goods would become available to domestic and foreign consumers at
lower prices Such big production becomes very much helpful during world
supply shocks, shortages, famines, sectarian and ethnic violence's and civil wars.
(b) As the commercial farming is made on big farms the use of modern agriculture
machinery, superior chemicals and hybrid seeds is increased. In this way, not
only agriculture sector, but the industrial concerns of the country would also
expand. The employment will increase boosting the national outputs. In this
way, both agri. and industrial sectors will support each other.
(c) The commercialized farming is like a business where highly efficient and
experienced farm managers are employed. The entrepreneurs get themselves
engaged in inventions and innovations. The production functions are prepared;
the predictions regarding inputs and outputs are made; and the projections
regarding outputs and prices are made.

 Despite the above mentioned benefits there exist the following apprehensions regarding
commercialized farming:
(a) The small farmers and their business enterprises are coming to an end. Such situation is
not only rising up in DCs but also in UDCs.
(b) The entry of MNCs in agriculture business will lead to create their monopolies. As a
result, the farmers as well as consumers will be exploited.

5. Strategy for Agricultural and Rural Development

 The economists present a lot of proposals whereby the agriculture sector would be able to
play its dynamic role in the development of poor countries. They are as:

(1) Improving Small Scale Agriculture - Technology and Innovation: In this respect there
is a need to improve the lot of small peasants. They should be acquainted with modern
technology, the use of machinery on the farms be increased. It will have the effect of
increasing the per acre yield.

(2) Institutional and Pricing Policies - Providing the Necessary Economic Incentives: As
far as Third World countries are concerned they lack social institutions and government

11
Oda bultum University Development Economics II Lecture Note policies as well arrangements
whereby the poor farmers could be provided the adequate amount of hybrid miracle
seed varieties of wheat, corn, rice and increased water and chemical facilities. Therefore,
the economists suggest that to promote agri. development and rural uplift, there is a
need to make institutional changes in the society which will not only provide sufficient
supplies of inputs but the incentives amongst the farmers should also be created
through proper support prices. Thus the Agriculture strategy should comprise green
revolution, support prices and agriculture reforms.

(3) Land Reform: Farm structures and land tenure patterns must be adapted to tilt dual
objectives of increasing food production and promoting a wider distribution of the
benefits of agrarian progress. Land reform usually entails a redistribution of the rights of
ownership or use of land away from large landowners in favor of cultivators with very
limited or no landholdings. It can take many forms:
 The transfer of ownership to tenants who already work the land to create family
farms (Japan, South Korea, Taiwan).
 Transfer of land from large estates to small farms (Mexico), to rural cooperatives
(Cuba), or to state farms (Peru).
 The appropriation of large estates for new settlement (Kenya).
All go under the heading of land reform and are designed to fulfill one central function:
the transfer of land ownership or control directly or indirectly to the people who
actually work the land.

(4) Supportive Policies: Though land reform is essential in many parts of Asia and Latin
America, it is likely to be ineffective and perhaps even counterproductive unless there
are corresponding changes in rural institutions that control production (e.g., banks,
moneylenders, seed and fertilizer distributors), in supporting government aid services
(e.g., technical and educational extension services, public credit agencies, storage
marketing facilities, rural transport and feeder roads), and in government pricing
policies with regard to both inputs (e.g., removing factor-price distortions) and outputs
(paying market-value prices to farmers).

(5) Integrated Development Objectives: Rural development, though dependent primarily

on small-farmer agricultural progress, implies much more. It encompasses (a) efforts to
raise both, farm and nonfarm rural real incomes through job creation, rural
industrialization, and the increased provision of education, health and nutrition,
housing, and a variety of related social and welfare services; (b) a decreasing inequality
in the distribution of rural incomes and a lessening of urban-rural imbalances in incomes
and economic opportunities; and (c) the capacity of the rural sector to sustain and
accelerate the pace of these improvements over time.

This is not only because the majority of populations in the developing world are located
in rural areas but also because the burgeoning problems of urban unemployment and
population congestion must find their ultimate solution in the improvement of the rural
environment. By restoring a proper balance between urban and rural economic
opportunities and by creating the conditions for broad popular participation in national
development efforts and rewards, developing nations will have taken a giant step
toward the realization of the true meaning of development.

12