Toward an Efficient Agrarian Systemunder

Globalization

Yujiro Hayami

Foundation for Advanced Studies in International Development

WBI Cambodia Seminar, 28 – 29 June 2005

Agrarian System

• Who own farm lands? Distributions of land ownership

• Who use farm lands? Distributions of operational land holdings

e.g., small family farms v.s. large plantations (estates)

= Rules to combine land and labor for agricultural production (formal laws and social norms/customs)

• Property rights on lands = exclusive rights to ・ use for productions ・ sell ・ lease ・ pawn (collateral)

• Contracts on land/labor transfers ・ land tenancy ・ labor hiring

Efficient use of land

・ Natural environments ・ Land/labor endowments ・ Technology ・ Markets (internal and external)

Agrarian Structure Agrarian Institutions

Historical path dependent (ad. hoc. events, e.g., colonialism, revolution and war, matter)

Family Farms & Plantationsunder

Trade Integration

Lecture 1

Export for Global Market

• Different labor opportunity costs

• Different information on producers

• Scale economies in transportation / processing

Decentralized hierarchy of traders/processors for bulking

large volumein

standardized quality

Exporter Local trade network Trans-shipper

Assembler assemble / process / store

Collector

=

=

Plantations

Family

farms

=

centralized management

Global

demand

capital / management

product

Postwar Paradigm ChangeT.W. Schultz, Hla Myint, W.A. Lewis

Peasants (small family farms)

irrational

tradition-bound

poor but efficient

responsive to opportunities

Demise upon modernizationCarrier of modern agriculture

• Green Revolution

• Growing dominance of peasants over plantations

• Failure of collective farms

Output boost from people’s communeto private responsibility system

Plantations

= modern sector

Estates versus Family Farms• Estates (agribusiness plantations, cooperatives, state farms, etc)

• Hired Wage Labor Incentive to shirk

• Hierarchical supervision

Efficient if (a) scale economies exist and/or

(b) close coordination is needed between production and processing

Ability to build Internationalization of investment returns

public infrastructure = Advantage in initial land-opening stage

Preemption of land by colonialism

• Family farms

• Unpaid family labor Incentive to work hard

• Self-supervision

• Efficient if public goods are provided Community Government

Empirical Facts

• Scale economies:

• Do not operate in agriculture at the field production level, but

diverse ecological conditions over wide area difficult to monitor / supervise hired labor

• Do operate at the level of marketing and processing

• Family farms’ shares of outputs and market sales increased as population density rose and infrastructure developed.

• Plantations’ conflicts with local community and ecology increased.

monoculture soil degradation

insect / pest incidence use of chemicals

Agrarian structure

Indonesia/ • Stratified peasants ------------------- rice

Malaysia landlord-cum-owner owner-cum-tenant

• Plantations ------- export crop

Philippines • Landless peasants ( tenants ) ----- rice

vs non-cultivating landlord

• Plantations ----------------------------- export crop

Thailand • Land - owing peasants -------------- rice/

(owner farmers) export crop

Promotion of Family farms Provision of public goods:

• Technological: Ag. research/extension,. Labor-using/scale- Irrigation, etc neutral

• Market : • Transportation / communication

infrastructure

Reduce disadvantage in

• Deregulation / liberalization small-lot product

sale / input purchase

• Property right protection /

contact enforcement mechanism

• Enhancing communities’ capacity in the provision of local public goodsUnsustainable to Sustainable farming ・ slash & burn ・ irrigated rice in lowlands ・ agro-forestry in uplands

Third alternative: contract farmingAg-business firm or cooperative

Technical guidance/credit

Small family farms

Processing plant

and/or

marketing center

Field-level production

Timely delivery

of product

as principal organizer

Agrarian Structure and Market Development: Some Examples in

Southeast Asia

Lecture 2

Market State

Competition Coercion

Private goods Global public goods

Community

Cooperation

Local public goods

Community, market and state in the economic system

Market

= Trader / processor network

• Marketing infrastructure

• Property right protection/ contract enforcement

FarmersGlobal

demands

Community

Trust/reputation/

ostracism

State

Laws/courts/

police

Global Demand Linkage with Farmers

From Peasant Marketing to Global MarketingPeasant Marketing

• Non-storable commodities Local market

Direct sale by producers

• Storable commodities Local/distant market

Loose decentralized hierarchy:

Small Large Trans-shipers/collectors collectors processors

Community relationship

Structural determinants:

• Different labor opportunity costs

• Different information on producers

• Scale economies in transportation/processing

Global Marketing

Non-storable commodities to distant market

Channels of local rice marketing in Laguna

(Trans-shipper)

Efficient for traditional subsistence crops =

Inefficient for the new crops of rising global demand

Plantation: High labor management cost

Contract farming: Efficient only with efficient contract enforcement mechanism

Can be organized by either trans-national firms or indigenous entrepreneurs !

storable with small marketable surplus, e.g., rice, corn, soybean, etc.

= perishable with large marketable surplus, e.g., flower, fruits, vegetable, etc.

Inefficient land use (monoculture) and high capital intensity

State (law, court, police) = high cost community ?

Traditional peasant marketing system

Operations of an inter-village collector for vegetable marketing in an upland West Java, Indonesia

Credit costs for vegetable producers under alternative credit arrangements in the Majalengka District, West Java, Indonesia, 1990

Modern Sub-Contracting System

Technical guidance/ credit

Timely delivery of quality product

Assembler

Parts supplier

First tier Second tier

=

principalorganizer

Make market competitive and contestable = open entry and exit ・ Invite more than one principal to operate. ・ Avoid granting subsides and monopoly rights to any one particular principal. ・ Especially avoid regional franchising = monopoly collection from producers in a certain area.

Government act as a fair third-party mediator try to promote cooperation through persuasion with rich information

Supply market information: grading, standardization of measures, commodity exchange, crop forecasting, regular quotation of market prices (local and international) through mass media

Protection of property rights and contracts e.g., land titling collateral for credit

Supply hard infrastructure roads, electricity, IT facilities

Environmental regulations

Policies to promote contract farming