--- title: "Complete Book 0" book: "PG ECON 231 Agricultural Economics" category: "PG ECON" publisher: "Ratan Prakashan Mandir Pvt. Ltd." type: "Educational Material" --- According to Latest Syllabus Read For Sure SuccessIn University Examination RATAN TEXT BOOK AGRICULTURAL ECONOMICS M.A.Economics Sem-lll Dr. Harish Nigam Published by Ratan Prakashan Mandir Pvt. Ltd. 2nd Floor, Centre Plaza, Parinay Kunj, Lajpat Kunj Marg, Agra-282002 Copyright Authors & Publishers Published by Ratan Prakashan Mandir Pvt. Ltd. 2nd Floor, Centre Plaza, Parinay Kunj, Lajpat Kunj Marg, Agra-282002 ISBN :978-81-69687-36-2 Price 660.00 only Printed at : KIDS INTERNATIONAL PVT. LTD. C-60, 61, 62, 63, EPIP, Shastripuram, Agra - 282007 Ph. : +91 9719004921 UNIT-01NATURE AND SCOPE OF AGRICULTURAL ECONOMICSSTRUCTURE 1 .0 Objectives 1.1    Introduction 1    .2 Definition of Agricultural Economics 1    .3 Nature and Scope of Agricultural Economics 1    .4 Agriculture and Economic Development 1    .5 Role of Agriculture in Economic Development 1.5.1    Provision of Wage Goods 1    .5.2 Supply of Raw Materials for Industry 1.5.3    Provision of Capital 1    .5.3. 1 Agriculture Taxes 1 .5.3.2 Mopping up of the Rural Saving 1    .5.3.3 Changing the terms of trade in favour of the industrial Sector 1 .5.3.4 Use of disguisedly unemployed Labour 1 .5.3.5 Direct investment 1.5.4    Supply of labour for the Industrial sector 1.5.5    Expanded Market for the Industrial Products 1.5.6    Earning of Foreign Exchange 1    .5.7 Creation of Certain ancillary services 1    .6 Role of Industry in Agricultural Development 1.6.1    Provision of market for the agricultural products 1    .6.2 Provision of modern Agricultural Inputs 1.6.3    Reduction of population on land 1.6.4    Supply of consumer goods 1.6.5    Provision of Infrastructure 1    .6.6 Provision for better Intellectual Environment 1    .7 Inter-dependence between Agriculture and Industry 1.8 Limit of Interdependence 1    .9 Changing Role of Agriculture in Economic Development 1.10    Summary 1.11    Glossary 1    .12 Answers to Self-check Exercises 1.13    Suggested Readings 1.14    Terminal Questions 1 .0 OBJECTIVES After going through this lesson you will be able to: •    Define agriculture economics. •    Discuss the Nature and scope of economics. •    Explain the Role of Agriculture in Economic Development •    Explicate the Role of Industry in Agricultural Development. •    Discus the Inter-dependence between Agriculture and Industry 1.1    INTRODUCTION Every day each of us is confronted with economic choices. Each of us must choose which goods, services, and activities mean most to us. There are limitations to available resources and time for acquiring the goods, services and activities that are wanted. The decision to use the scarce resources to fulfill our unlimited wants is the process of economizing. From the time we receive our first nickels and dimes for treats, we must choose 'among opportunities whether to go with father to the fields or with mother to the well. As we grow older the economizing decisions become more complex-attending college or taking a job, buying a tractor or adding to the barn. Agriculturists, farmers, agro-businessmen, and public administrators are faced with economizing problems every day. Studying the application of economic principles to agriculture is no assurance of success in economic decision making but should give one a better understanding of the economizing process and lead to better decisions. Before we proceed further to explain the nature and scope of agricultural economics it is necessary to know what exactly the word ‘agriculture’ covers. Agriculture is the whole complex of producing, processing, and distributing plant and animal raw materials, supplying farm inputs, and providing public services to farmers. Agriculture industry has three parts; the farm sector, the agri-business sector and the public services subsector. Farming is on farm part of agriculture and includes producing plant and animal raw material for food, fiber and industrial uses. Agribusiness is the off- farm part of agriculture and includes the processing and distributing of plant and animal raw materials and supplying inputs to farmers. Public service is the central, state, and local government activities that are related to farming and agribusiness and includes education, research, information, regulation, inspection and control. While going through the definition of ‘agricultural economies’, that is given below, the coverage of the word ‘agriculture’ as described above may be kept in view. 1.2    DEFINITION OF AGRICULTURAL ECONOMICS Agricultural economics is an applied social science in which the principles and analytical methods of economics are used to seek solutions to the economic problems in agriculture. 1.    According to Dr. Taylor, Agricultural Economics “deals with the principles which underlie the farmer’s problems of what to produce and how to produce it, what to sell and how to sell it, in order to secure himself the largest net profit consistent with the best interest of the society as a whole”. 2.    Goodwin defines Agricultural Economics as “a social science that is connected with human behaviour during the process of producing, processing, distributing and consuming the products on farms and ranches.” 3.    Prof. Hibbard, has defined Agricultural Economics as “the study of relationships arising from wealth getting and wealth using activities of man in agriculture.” This definition is based  on Prof, Ely’s definition of economics, and is a mere akin to Marshall's conception of economic activities and therefore it is limited in scope. 4.    Gray defines agricultural economics, as the science in which the principles and methods of economics are applied to the special conditions of agricultural industry.” No doubt this definition is wider in scope,  but this is not explanatory and is characterized by vagueness. 5.    According to Heady, “Agricultural economics is an applied field science where in the principles of choice are applied to the use of capital, labour, land and management resources in the fanning industry. As a study of resource efficiency, it is concerned with defining the conditions under which the ends or objectives of farm managers, farm families and the nation s consumer can be attained to the greatest degree. 6.    According to Edgars Thomas, ‘‘Agricultural economics is concerned with farming as a business and with agriculture as an industry. In the more restricted sphere of farm management the student of agricultural’ economics is concerned with the business problems of the farm as the producing unit of the industry. In the wider sphere of social economics he is concerned with the general economics pattern of the agricultural industry as a whole and with the forces responsible for the molding of that pattern; he is also concerned with the relation of the agriculture industry to other industries within the national economy as well as with its place in world economy.” In the end we may define Agricultural Economics as that branch of general economics in which principles of economics are applied to solve agricultural problems to maximize agricultural production. 1.3    NATURE AND SCOPE OF AGRICULTURAL ECONOMICS The agricultural student seeking to understand the economics of agriculture should be aware that economics cannot be applied to agriculture independent of and separate from the knowledge gained in other courses. Effective use of any specialized knowledge depends upon the user’s ability to integrate the knowledge with all other knowledge required. The principles of economics are too general in nature and the general theory of economics has been considered as an abstraction from reality. Sometimes pure theory is studied; other times theory is applied to solving specific problems, in agricultural economics we must understand theoretical concepts before we can effectively use theory to solve problems. As a student you should guard against falling into the trap of believing applied economics is more practical than theoretical economics. Application is relevant to a specific problem only so long as the problem lasts. Applied science has shorter usefulness than theoretical science. Theory gives the basis for solving problems. Theory is a general body of knowledge that describes a phenomenon. Theory permits one to abstract from reality, so that one variable can be studied by itself. So far agriculture is concerned it is presumed that the size of farms is relatively, small, their number is very large, and the crops produced are homogenous, perfect competition is likely to prevail in agricultural produce market. In other words, the study of price formation of agricultural produce under condition of imperfect competition is completely ignored. Then there is a system of tenancy or crop sharing in agriculture—a problem particular to agriculture only. Study of this problem will necessitate modification of the principles of resource allocation as propounded in general economics. The modification of economic principles, required to be made before being applied to agriculture are so large and varied that there is a complete justification for studying agricultural economics as a ‘separate body of knowledge.’ An agricultural economist deals mostly with organizing individual business firms for optimal resource use. Consequently, teaching has emphasized micro economics. But now that the various sectors of the economy have become more interdependent, such economic problems as unemployment, inflation and investment levels have a greater impact on the farmer and agribusiness man. Today’s agricultural student needs to understand not only how to organize or business for optimum returns but how changes in the whole economy effect his economic decisions. Agricultural economists, until recent years, have emphasized the economics of production because they were working with the problems of individual farmers, each of whom found it difficult to recognize the significance of the consumer upon his business. In recent years the consumer has often raised his voice to state his preferences, and farmers becoming more aware of him. Agricultural economics is a science as it explains the cause and effect relationship between various economic variables operating in agriculture but as is the case with ‘General Economies’, it is also an ‘art’. Observing that farm incomes are lower than non-farm incomes is positive economics. Concluding that farm incomes based on that observation are lower than they should be is normative economics. . All studies have their own limitations. Expectations beyond these limits result in disappointments by those engaged in the studies. For example, how does one measure satisfaction? In most sciences laboratory experimentation is the usual method of studying identified variables. When studying human behaviour the social scientist cannot bring the subject into the laboratory. Also, it has been found that observed behaviour is often different from true behaviour. Because social scientists seldom can use laboratory experimentation for ‘their studies, they make greater use of assumptions than do biological and physical scientists. Regarding sub-fields, agricultural economics is generally divided according to specialization of interests as agricultural production economics; agricultural marketing economics, agricultural finance, agricultural prices, agricultural policy etc. In the end, we must mention that one thing that the study of agricultural economics does not end in attaining the monetary return or maximum individual satisfaction of the farmer, but its ultimate objective is to secure the maximum social welfare. 1.4    AGRICULTURE AND ECONOMIC DEVELOPMENT There are developed countries in the world and there are also under-developed countries. The World Bank has divided all the countries of the world into four categories namely the high income countries, upper middle income countries, lower middle income countries. Some of the countries included in the first category are the U.S.A., West Germany, Great Britain and Japan The last category contains countries like Egypt, Philippines and Thailand. One could also say that the countries in the first category represent developed countries i.e. those countries which have been able to exploit its material and human resources in the best possible way so as to have the highest per capita income. The countries in the fourth category could be called under developed countries. The completely under developed countries, too, want to fully exploit their resources with a view to ensuring the highest possible standard of living for their people. The problem is how to achieve "this objective. And we may answer this question by saying that for most of countries, the relevant strategy is to initiate the development, process in the agricultural sector i.e. develop the agricultural sectors, first of all and then make use of the developed agricultural sector to develop the industrial and other sectors of the economy. The paragraphs that follows, explain why we should develop agriculture first of all and also how agriculture, if developed, can be help in the development of the other sectors of the economy, especially the agricultural sector. In under developed countries as listed above, agriculture and the industrial sector (as well as the tertiary sector) are under developed. The main question is: Which sector of the economy should be developed first of all? An extremely under developed country cannot make massive investment in the entire sector, the economy simultaneously. There is an utter shortage of resources, especially the capital. A process of unbalanced growth is to be adopted. Theoretically, the development process could start from any sector agricultural, industrial or the tertiary sector. For example, in the first instance massive investment could be made in the industrial sector and then the products of this industrial sector e. g. fertilizer etc. could be used to increase the productivity in the agriculture sector. However, some basic problems are likely to be faced in the development of the industrial sector. With an under developed agriculture sufficient marketable, surplus of food grains for sustaining the newly created industrial labour force, may not be available. Secondly, funds for massive investment for the development of industrial sector may not be available. Thirdly, the necessary entrepreneurial as well as technical skills may not be available in the initial stages for industrial development. Some of these very problems may hinder the smooth development of tertiary sector if efforts are made to develop the tertiary, sector (i.e. roads, power, education scientific institution etc.) The development of agriculture will not present such problems. It is not that additional capital for agriculture development is not required. However, the labour intensive character of agriculture in most of the under developed countries will need more labour and less of capital in the form of heavy machinery etc. Even otherwise, as we know, in a biological industry like agriculture, use of machinery is limited. Similarly, not much technical knowledge is involved in adopting new crop practices and new agricultural inputs. So, except in case of some oil based economy, the general process, of development, of both at theoretical, plane as Well as at the empirical plane, has been initiated in the agricultural sector. The industrial revolution in England was preceded by an agricultural revolution. In Asia the industrial development in Japan in the beginning of the twentieth century owes its success to the agricultural development that took place in the last quarter of the nineteenth century and early years of the 20th century. In India, we also tried to follow the same process in the postindependence period; by giving a high priority to agricultural development in our five year plans especially the first plan. The economist who said, “Industrial use at costs’ is not a word of wisdom” was not wrong when he indirectly emphasized the development of the agricultural sector in the first instance. 1.5    ROLE OF AGRICULTURE IN ECONOMIC DEVELOPMENT So far we have tried to establish that the development process must start from the agricultural sector or as some economists say that development of agriculture should precede the development of other sectors. Now we have to answer another question. It is that assuming that agricultural sector has developed, how the development process will percolate to other sector of the economy or to put it differently. What are the channels or the ways through which a developed agriculture will help in the development of the other sectors of the economy? The following paragraphs deal with this problem. 1.5.1    Provision of Wage Goods: If a country is to be industrialized, some of its population so far engaged in agricultural pursuits will have to be, shifted to the newly developed industrial sector. This part of the population is to be provided with food even when it stops producing agricultural goods. In fact, its demand for food products may increase when it get wages which are generally higher than those being earned in the agricultural sector. On the other hand there can be (though not necessarily) a fall in, agricultural production when people shift from agricultural sector to the industrial sector. Under these circumstances if agriculture has been properly developed and agricultural production has been increased, there will be no difficulty in food for the people now transferred to the industrial sector. An increase in agricultural production will save the people still left in the agricultural sector, from making any additional sacrifice in the form of reducing their own consumption of food-grain, if the economy’ is to be industrial. According to some economists, this is the most important contribution “of the agricultural sector to the development of the rest of the economy in terms of the permanency of these contributors. As we shall see later, while other contributions of agriculture may lose their importance, As the time passes, this contribution will remain as important as ever. Demand for food by people engaged in any occupation can never disappear and there is no possibility, at the same lime, in the foreseeable future for any synthetic food products to displace the agricultural products. 1.5.2    Supply of Raw Materials for Industry Another important contribution made by the developed agriculture towards the development of the rest of the economy in the initial stages is in the form of supply of raw materials of the industrial sector. Intact an additional reason for developing agriculture in preference to other sectors of the economy lies in the relatively better, suitability of the raw material supplied by the agricultural sector, for industrial development when compared with the minerals which serve as the other group of raw materials for the industry. In the first instance, agricultural raw materials are easier to produce as compared with minerals. Minerals are exhaustible while agricultural raw materials are reproducible. Nature plays the major role in producing agricultural products-and its help is totally, free. Secondly, (and this is quite important in-the initial stages of economic development) industries based upon agricultural raw materials can have low capital intensive techniques in the initial stages when there is a shortage of capital in the economy. Infact techniques used by industries using agriculture raw material are quite flexible in nature. These range from very low capital intensive technique to a very high capital intensive technique. This is, for example what we find in case of cloth, sugar and soap manufacturing etc. All mineral based industries are generally high capital intensive. Thirdly, some economists feel that the psychological cost of transfer of labour from the agricultural labour to the industrial sector is very low. A labour will, according to these economics will feel more at home if he works in cotton factory rather than in an electrical factory. This contribution is again made possible only when agriculture itself is developed in the first instance. Demand for agricultural raw material represents a fresh addition to the first while demand for agricultural product and it can be met only either by increasing the productivity per acre of land, or by bringing more area under cultivation or by diverting land from food or fodder crops to crops to be used as raw material. Obviously the exclusive use of third method is ruled out because production, of food or fodder cannot be decreased. So increase in production by the first two methods is necessary, if the demand for agriculture products is to be met. 1.5.3    Provision of Capital: It is obvious that in the initial stages when the industrial sector is almost nonexistent and agricultural sector has experienced some development, if savings, as a source of capital, will be generated only in the latter sector. It is the agricultural sector which is the custodian of all income and saving in the initial stages. So in the absence of any foreign aid, -the newly developing industrial sector will have to depend upon the agricultural sector for funds for setting up various industrial undertakings. Even funds for building up infra-structure for quite some time will go from the agricultural sector. There are many ways through which savings of the agricultural sector can be mopped up. Some of these methods are as follow:— 1.5.3.1    Agriculture Taxes: Land Taxes like land revenue. Taxes on agricultural incomes, taxes on agricultural crops, stamp duty on transfer on land etc. are some of the important taxes imposed in the democratic countries of the world. Delivery quotas fixed by the govt, without any payment also represent, type of tax imposed in regimented economics. Land Tax was an important source of State Revenue in Japan during the last two decades of the nineteenth century. About 80% of the slate revenue was collected through such a tax during this period. 1.5.3.2    Mopping up of the Rural Saving: To encourage the agriculturist to deposit their unutilized surplus savings with some banking institution sector to the industrial sector. Such institution can take the form of commercial lands, regional rural bank etc. These institution after accepting these deposits can decades a part of them to the industrial sector through lending to the entrepreneurs operating in that sector. 1.5.3.3    Changing in favour of the industrial Sector: More resources can flow to the industrial sector from the agricultural sector if the government deliberately manipulates the terms for the industrial sector means that prices which the industrial sector pays for the products received by it from the agricultural sector become relatively less when compared with what the agricultural sector pays for the products required from the industrial sector. Such a change in relative price will means a reduction in the cost of production of the industrial products as compared in the cost of production of the industrial products. Profitability of the industrial sector will increase in relative terms. More capital can then flow into this sector. 1.5.3.4    Use of disguisedly unemployed Labour: Nurkse has suggested another method for providing capital to the industrial sector. According to him, most of the under developed countries are over populated countries and in such countries, there, is a significant portion of population which does not contribute anything to agricultural production. In other words, marginal productivity of a large portion of the agriculture labour force in such countries is zero. This type of labour is called disguisedly unemployed labour because such labour though unemployed, looks busy on the domestic of family farms. Nurkse suggests that such labour can be withdrawn from agriculture without loss of any production and be used for building up some type of capital e.g. roads, canals drains embankment and some crude implements. It may be noted that though the suggestion is theoretically plausible, it has not been given practical shape in any country, in an organized manner. It has not been possible to identify the disguisedly unemployed labour, not to speak of transferring it through force to the industrial sector. 1.5.3.5    Direct investment Direct investment by the agriculturists in the industrial sector is another important method. The example of agriculturists of England, landlord of Japan and Zamindars of Gujarat for developing the industrial sector is well known. 1.5.4    Supply of labour for the Industrial sector: In the initial stages when the industrial sector is not developed most of the labour force is engaged in agriculture per units. Labour for industrialization will obviously have to be obtained from the agricultural sector. We may note here that there are three main sources of labour, supply may to any sector of an economy. These are (1) Natural Population Growth (2) Immigration and (3) diversion from other sectors. Obviously ability of labour through natural population growth in a country will be a very slow process. Immigration from other countries, too, not supplies all the labour required by the industrial, sector, once it starts growing. Difference in language, religion, customs, restriction on immigration etc. all will hinder the flow of labour to a particular country. Adam Smith was not wrong when he pointed out that of all the luggage man was the most difficult to be transported. So diversion of labour from the agricultural sector to the industrial sector may only be the feasible method for the smooth industrialization of an economy. The above conclusion needs some further elaboration. If it is a country with disguised unemployment as described by Nurkse transfer of labour will be, effected without any loss of .agricultural production. However, in a country with no surplus labour, transfer of labour will reduced the total agricultural production. This may adversely affect the other contributions of agriculture like supply of wage goods or supply of raw materials. So in such a case, need for the prior development of agriculture will become still stronger. Increase in area under cultivation and increase in productivity per hectare will be the only way through which not only will the loss of production caused by transfer of labour will be neutralized but which will also help in satisfying the increased demand for food-grains by the transferred labour as well as that for raw materials meant for the industrial sector. 1.5.5    Expanded Market for the Industrial Products: Agriculturists as consumers provide a vast market for the industrial products and as such, an increase in the income of the agriculturists through development of agriculture itself will further expand the market for these products and the provision of this market in the initial stages of industrialization is very important. This is because, in the absence of a domestic market, the industrial sector will have to depend upon foreign markets for the disposal of their products and the face of matter is that entry into a foreign market is not at all easy. Absence of knowledge about the foreign countries, unfavourable commercial policies and regulations of the foreign governments and the intense competition which an industrial concern has to face in a foreign market will also make a foreign market for sale of products, rather unattractive. 1.5.6    Earning of Foreign Exchange: A developed agriculture not only creates a marketable surplus but also an exportable surplus. In fact, in the present day ‘world such a surplus is very important. Exports will earn foreign exchange which will be used to purchase capital goods with the latest technology for the industrial sector. Even some agricultural inputs like fertilizers and pesticides can be imported with the foreign exchange earned through agricultural exports. This will in turn, help in increasing the agricultural production still further. 1.5.7    Creation of Certain ancillary services: A developed agriculture will also create demand for various institutions required for marketing of agricultural produce. Institutions engaged in transportation, marketing, storage and distribution of agricultural produce etc. will come into existence. Various institutions engaged in processing of agricultural product will also be set up. 1.6    Role of Industry in Agricultural Development: The preceding paragraphs explain how agricultural development directly helps in the development of industry and also the tertiary sector in some cases. However, this should not mean that the industrial sector (as well as the tertiary sector) does not help in the development of agricultural sector itself. No doubt, in the initial stage, capital, labour, raw material etc, flow from the agricultural sector to the industrial sector. However, with the passage of time industrial, sector achieves maturity, its dependence on agriculture for these inputs decline. On the other hand, it develops various non-agro based industries which can help in improving agriculture production. It also starts helping agriculture in some other ways. The following paragraphs explain how industry helps the agricultural sector. 1.6.1    Provision of market for the agricultural products: No doubt, the agricultural sector provides for a vast market for the industrial Products in the initial stages of its development. However, at some later stage the reverse of it also becomes true. After the development of the industrial sector gains momentum, it is no longer necessary for it to depend for its raw materials on the agricultural sector. It can use minerals and salts for its further expansion. This is a stage when the agricultural sector can dispose of its Products especially the raw materials to the industrial sector only to the extent, the latter demands them. Further development of the agricultural sector, thus to a significant extent, will be controlled by the expanding industrial sector. 1.6.2    Provision of modern Agricultural Inputs: In the absence of a developed industrial sector, agriculture can be developed only by improving the traditional inputs. The pace of development of agriculture in such a situation is rather slow. For a more rapid development, agriculture must be provided with modem inputs like fertilizers, pesticides, high yielding variety seeds and machinery etc-. These will be produced in the country itself when the industrial sector is sufficiently developed and starts producing mineral based and salt based products. The success of green revolution in India is basically due to the supply of the modern inputs to agriculture by the industrial sector. Transport industry and other service which has contributed a-lot in the movement of agriculture to employ land, and also for the marketing of agriculture produce, is also a gift of the industrial sector. 1.6.3    Reduction of population on land: No doubt, agriculture supplies labour to the industrial sector in the beginning. This contribution can also be looked at from another angle. It is that the expanding industrial sector will help in withdrawing more and more labour from the agricultural sector when it achieves maturity and starts expanding on its own. This withdraw of- labour 'from the agricultural sector is quite important in those countries where population pressure is rather high and agriculture despite its expansion cannot absorb the additional labour force caused by increase in population. There are examples where the industrial sector has absorbed so much labour unit, that the labour force engaged in agriculture declined is not only in relative terms but also in the absolute sense Countries like U.K., Sweden, Japan and U.S.A. have experienced such a decline. In some of these countries even the average size of holdings has also increased due to the transfer of labour from the agricultural sector to other sectors. 1.6.4    Supply of consumer goods: The industrial sector not only supplies agricultural inputs to the agriculture sectors but also the goods for consumption purpose. The industrial sector specializes in production of varieties of products. This results in diversification of the consumption pattern. A more satisfying consumption pattern in the rural areas has thus become possible only because of the consumables supplies by the industrial sector. Radios, watches, cars, television sets and modem household goods have found their way into the consumption pattern of many of the well-to-do farmers even in India. Even the small farmers in various countries use industrial products. And an urge to maintain the newly achieved higher standard of living prompts the agriculturalists to put in more efforts to increase the agriculture output. 1.6.5    Provision of Infrastructure: Infrastructure both in the form of services like banking, insurance etc. as well as material form like roads, power installations, scientific laboratories education and health institutions etc. is very necessary not only for the development of industrial sector but also for the development of agriculture. For example about the importance of roads for agricultural development, Ashby says, “If I could do only one thing in the region to spur agricultural development I would build roads. And if this, I could add a third, I would build still more roads.” Same degree of importance can be attributed to power and scientific laboratories. All these are basically the gift of the industrial sector. 1.6.6    Provision for better Intellectual Environment: It is obvious that intellectual environments in the urban areas, technical, managerial social and cultural fields are far superior to those in the rural areas. Form these centers, technical and managerial skills information about better living and that about social and critical flows to the rural areas. People in the rural areas shed conservative and superstitious way of life when they come into contact, with people in the urbanized industrial area. 1.7    Inter-dependence between Agriculture and Industry Form the foregoing analysis, we find that whereas in the initial stages, it is agriculture that helps in the development of the industrial sector, at some later stage the industrial sector also starts helping in the further development of the agricultural sector. Initially, e.g. agriculture supplies raw materials, wage goods, labour and capital for the developing industrial sector. At u later stage the industrial sector starts providing agricultural inputs and other consumables to the agricultural sector. It provides infrastructure for agricultural sector so as to reduce population pressure on land in the rural areas. It also helps in creating better intellectual environment in the rural areas. In other words, one way traffic changes into two- way traffic. Both agriculture and industry helps each other and indirectly each sector helps itself to grow, by extending help to the other to develop. 1.8    Limit of Interdependence: We must note that die interdependence between the agricultural sector and the industrial sector implies that it efforts are made to develop one sector, it will also lead to the development of the other sector. It this interdependence was complete and each of the two sectors depended solely on the other for an input, the problems of economic development would have become simple. The government could, in that case, concentrate on the development of any one sector and the other sector would have automatically developed. However, the inter dependence is not complete. Agriculture for example, for its development, depends not only on inputs supplied only by the industrial sector but also us some inputs supplied from other sources like irrigation facilities. Industrial sector, also need, some physical inputs like minerals and machinery which will in no case, be provided by the agricultural sector. Further, different sector have some special problems of their own which will need separate policy measures meant for them. For example, special step will have to be taken to enable the farmer to meet yield uncertainty. Institutional changes like elimination of intermediaries and tenancy reforms have to introduce for the benefit of the agricultural sector. Industry will, similarly need special steps for its development like purchase of machinery from outside. Thus we can say than in view of the limited interdependence between agriculture and industry, government will have to follow a broad based policy for development of the economy. 1.9    Changing Role of Agriculture in Economic Development: We have so far pointed out that in the initial stages of economic development agriculture helps in the development of industries. Later on industry starts helping agriculture in its development and the inter dependence between the two sector. The two sectors help each other to grow. With the passage of time this interdependence becomes weak. As the industrial sector grows, its need for capital can be met from with itself. Internal savings can be invested. Minerals instead of agricultural products begin to be used as raw materials can come to an end. Automatic machine may reduce the demand for labour. In the end one can say that only demand for food grains will slay. Demand for raw materials from the agricultural sector may also continue though its rate of increase will be progressively down. This is mainly because of emergence of synthetic substitutes for agro based products. On the other hand, demand for inputs for agricultural production like fertilizers, insecticides, ‘machinery etc. will continue to grow. The overall result will be that in the end process of dependence will be reversed. Agriculture comes to depend more on agriculture as was the case in the initial stage of economic development. Exercise 1.1 Q1. Define Agriculture Economics? Q2. Discuss the Nature and scope of economics? Q3. Discuss the Inter-dependence between Agriculture and Industry? 1.10    SUMMARY If an under developed country wishes to move on the developmental path, it should invariability start with the development of its agricultural sector. The developed agricultural sector will then help in the development of other sectors, especially the industrial sector through the provision of wage goods, raw materials, capital labour and expanded market and also through earning of foreign exchange. At a later stage, the industrial sector will start helping the agricultural sector in the development sector, in the development of the overall economy. 1.11    GLOSSARY •    Disguisedly unemployed Labour: Unemployment that does not affect aggregate output. Disguised unemployment exists where part of the labor force is either left without work or is working in a redundant manner where worker productivity is essentially zero. An economy demonstrates disguised unemployment where productivity is low and where too many workers are filling too few jobs. •    Consumer goods: products that are purchased for consumption by the average consumer. Alternatively called final goods, consumer goods are the end result of production and manufacturing and are what a consumer will see on the store shelf. Clothing, food, automobiles and jewelry are all examples of consumer goods. Basic materials such as copper are not considered consumer goods because they must be transformed into usable products. •    Immigration: Immigration is the movement of people into another country or region to which they are not native in order to settle there.[1]Immigration is a result of a number of factors, including economic and/or political reasons, family re-unification, natural disasters or the wish to change one's surroundings voluntarily. •    Terms of trade: The value of a country's exports relative to that of its imports. It is calculated by dividing the value of exports by the value of imports, then multiplying the result by 100. If a country's terms of trade (TOT) is less than 100%, there is more capital going out (to buy imports) than there is coming in. A result greater than 100% means the country is accumulating capital (more money is coming in from exports). 1.12    ANSWERS TO SELF-CHECK EXERCISES Exercise 1.1 Answer 1. Refer to section 1.2. Answer 2 Refer to section 1.3. Answer 3. Refer to section 1.7. 1.13    SUGGESTED READINGS 1.    R.N. Soni: Issues in Agricultural Economics, Shoban Lal Nagin Chand & Co. Jallandhar. 2.    Niehols, W.H. Eicher, and L. Wil (ed): “The Place Of Agriculture In Economics Development. Bombay, vora & Co. 3.    Kuznets, S: Economic growth and Structure. New Delhi, Oxford. 1.14    TERMINAL QUESTIONS Q1 . What do you mean by agriculture economics? Q2. Explain the Role of Agriculture in Economic Development? Q3. Explicate the Role of Industry in Agricultural Development? Unit-02 FARMING SYSTEMS STRUCTURE 2.0 Objectives 2.1    Introduction 2.2    Types of Farming System 2.2.1    The Traditional System: 2.2.    1 .1 Advantages of peasant Farming 2.2.    1 .2 Disadvantages of peasant farming 2.2.2    Commercial Farming 2.2.2.1    Advantages of Commercial farming 2.2.2.2    Disadvantages of commercial farming 2.2.3    State Farming 2.2.3.1    Advantages of State farming 2.2.4    Collective Farming 2.2.5    Cooperative Farming: 2.2.5.1    Cooperative Farming Society 2.2.5.2    Variants of a cooperative farming society: 2.2.5.3    Essential Features of a Cooperative Joint Farming Society: 2.2.5.4    Advantages of Cooperative Joint Farming 2.2.5.5    Disadvantages of cooperative farming 2.2.5.6    Future of Cooperative Joint Farming in India: 2.3    Summary 2.4    Glossary 2.5    Answers to self-check Exercises 2.6    Suggested Readings 2.7    Terminal Questions 2.0 OBJECTIVES After going through this lesson you will be able to: ❖    List the different types of farming. ❖    Notify the advantages and disadvantages of Traditional system of farming. ❖    Explain in detail the Essential Features of a Cooperative Joint Farming Society. ❖    Report the Future of Cooperative Joint Farming in India. 2.1    INTRODUCTION Though the word ‘system’ has many meanings, we use this term in the present lesson, in the context of enterprising ‘systems’ Description of an enterprising system involves the narration of three elements namely ownership, control and operation. 2.2    TYPES OF FARMING SYSTEM We distinguish among different enterprising systems in agriculture on the basis of (a) who owns the land (b) who controls its operations i.e. cultivation and (c) who operates it i.e. who actually cultivates it.’ Sometimes, these farming systems are also known as farm organizations. On the basis of the above three elements, we shall describe below the following important farming systems: 1.    The traditional system 2.    The commercial system 3.    Collective farming 4.    Co-operative farming 2.2.1    The Traditional System: This is a system which is generally prevalent in a backward, stagnant agriculture. The main feature of this farming system can be traced to the characteristics of an "overall backward economy. Industrial sector is nonexistent and therefore the population mainly depends upon agriculture. Population pressure on agricultural, has resulted in perpetual subdivision of holdings and therefore, size of the farm is very small. In some cases, the size of the farm is so small that it is difficult for the farmer to use the family labour and other resources optimally on the farm. As agriculture is backward, there is no marketable surplus on such small farms. This system is therefore, also called subsistence farming. Large size of the family makes agricultural labour intensive. The capital used on the land is of crude, form. In terms of the elements which distincts traditional system form other farming we can say that the farm, that is cultivated is generally owned by the farmer himself. He is the controller of the operations on the farm. That is, he decides what should be produced, what should be the quantity of various inputs each of the various crops. He- is also the operator of the farms i.e. he cultivates the land with his labour along with that of his ‘family. In other words in such a farming system the farmer combines' in him, the rules of an owner, a controller and an operator of the farm. This system is also known as peasant farming. One could also visualize a variant of this system with regard to the ownership of land. The farmer cultivating the small piece of land may be a tenant rather than the owner. However in actual practice tenancy is on a very limited scale in such a system. Two factors work against tenancy. One is that the size of the farm is rather small and as such, there is generally no surplus land available with the owner to lease it out. secondly even when the small farmer wishes to lease out his land, he may ultimately decide against doing so simply because he himself will not find suitable job opportunities outside agriculture as the industrial sector is practically, nonexistent. 2.2.1.1    Advantages of peasant Farming: each farming system has its own advantages an well as disadvantages when compared with other farming system from that angle the traditional farming system has the following advantages. (a)    Better supervision: Unlike in industry, the area of Operation for a worker in agriculture is very large. Supervision in of his work always present a problem. If the size of the farm is small, the owner himself can effectively supervise the work of the labourer and can also guide and direct him to do his job in a particular way if, on the other hand, the size of the farm is large and many workers have to carry on their work, spread over a large area, the supervision of their work on personal basis will become difficult. ‘The owner of the farm will have to depend upon various supervisors and managers for purposes of supervision and it is quite possible that the supervisors and managers may not work with full devotion and responsibility. (b)    More employment: In peasant farming there is generally a greater scope for employment on the farm, when compared with other farming systems. There are many reasons for this. Firstly, as the farm is small in size, the use of machinery becomes costly and therefore limited. Labour is thus not displaced. Secondly, the farmer uses the labour of his own family and treats it as free labour. As such, he uses this labour to such an extent that its marginal productivity becomes equal-to zero. On the other hand, farming systems which use hired labour, employ it only up to the point where its marginal productivity is equal to the wage paid to it. The employment on farms under many systems, other than the peasant farming is thus much less, when compared with that under peasant farming. (c)    Greater Productivity: Productivity per area on a farm under peasant farming is large than on farms under other systems, when the farms generally happen to be larger in size. The main reason form this is the greater intensity of cropping which, in turn, is due to greater use of labour per acre on small farms when compared with that on a larger farm. Productivity on a small farm (which is an important feature of peasant farming) is large due to greater use of ‘about on such farms. A strong motivation to feed the family from a small piece of land also improves the quality of domestic labour put in. The fact that productivity per acre is higher in small farms, has been amply proved by the farm management studies conducted in India during the fifties. (d)    Tenacity of small farms: The fact that small farms are important feature of peasant farming proves to be a boom from another angle also. In times of emergency, like flood, etc. a small farmer with a sufficient labour force is able to face its onslaught more successfully than a large farmer. Further, as the small farmers generally neither purchase any input from the market, nor sell any output, they remain immune from the fluctuations in the prices of various inputs or crops. (e)    Possibility of quick decision: Frequent weather and climate changes necessitate immediate decisions on the part of a farmer. Such decisions are easier to take when the owner himself controls the farm and easier to implement when he himself is the operator of the farm and when the size of farm is rather small. 2.2.1.2    Disadvantages of peasant farming: Peasant farming has some disadvantages from which some other farming systems do not suffer. These disadvantages are as follow: (a)    Difficulty in using improved practices and improved inputs: Transformation of agriculture is more difficult when the farms are small in size. Some improvement on the farms like fencing and drainage cannot be effected. Rotation of crops is difficult. Construction of farms buildings is relatively more costly on small farms. Digging of a well is uneconomic. Financial stringency makes it difficult for the peasant proprietor to arrange for the purchase of modem inputs for the farm (b)    Low marketable surplus: Production of a small farm is sufficient to meet the domestic needs to the farmer only. He has no surplus of food grains to see in market. This, in turn, hinders the growth of the industrial sector because it becomes difficult to sustain those who are working off the farm and are engaged in industrial production. (c)    No optimum use of available resources: A small fanner has a pair of bullock and which provides enough of labour for farmer cannot use them optimally because the size of the faun is rather small. ‘The resources of the farmer, then either remain unutilized or are misutilized. The problem of disguised unemployment, especially on small farms is well known. (d)    Weak commercial motive: The small farms are generally off the market. He neither purchases any input from the market, nor sells any surplus in market. They thus remain uninfluenced by the changes in the market facer. The crop pattern, therefore, does not change with the change in prices and it often remains un- remunerative. 2.2.2    Commercial Farming: Commercial farming represents, as against the peasant farming, the other extreme of farming systems. Here, as against the private ownership of a farm by a single farmer, the ownership is generally in the hands of a large number of persons who form a joint stock company to own the farm. (However, commercial farming is compatible even with a single owner if he can own a large farm-large enough, as to necessitate the use of hired labour), so far as the control of over production i.e. decision making power with regard to production is concerned it is generally in the hands’ of employed managers. The hired labourers operate the farms. They constitute a class different from that of the managers who supervise the work. In India, various tea and coffee plantations are the fine examples of commercial farming. Commercial farming is quite popular in U.S.A., Australia and U.K. Commercial fanning is also known as estate farming or corporate farming in case a joint stock company owns the farm Another name for commercial farming is capitalistic farming simply because, in this, case production is carried on’ with the help of machinery which is generally operated by hired labour. And this system is called commercial farming because; unlike in subsistence farming, the production is meant for the market. Almost the whole of the product, (except that which is necessary for seeds etc.) is marketed. As the farms purchase most of the inputs from the market and sell most of its produce in the market, the commercial motive of such a farm becomes very strong. The crop pattern becomes totally market oriented and is influenced fully by the changes in the market forces. One is not wrong when one points out that where as the commercial, motive (to get maximum profit) is the guiding force for a commercial farm, the technical motive (to get the maximum physical output) is the guiding force for a subsistence farms. 2.2.2.1    Advantages of Commercial farming: A commercial farming is free from the main disadvantages from which subsistence farming suffer. A commercial farming, for example, has sufficient financial resources with it. As such, it can purchase new and improved inputs from the market. It can use resources for the purpose but also because the large size of farm can reduce their cost per unit of output. Fencing, drainage ' and leveling of land can be taken up. Rotation of crops can be introduced. Wells can be dug up. Farm building and roads can be built on the farm. Further, the commercial farms provide much marketable surplus of food grain to the industrial sector. Commercial farms thus encourage the development of the industrial sector. Various commercial economies in marketing etc. can also be reaped by the commercial farm due to its large size. As the commercial motive on such farms is quite strong the crop pattern responds to price changes and the allocation of resources becomes optimum. 2.2.2.2    Disadvantages of commercial farming: Commercial farming is not free from certain drawbacks. The most important flaw with this farms organization is the displacement of labour that takes, place due to excessive use of machinery on the commercial farm. The size of the farm is quite large to permit the use of sophisticated machinery and at the same time, ‘free’ family labour is not available. Labour has to be hired and paid, for. Not only is labour displaced on a commercial farm, the labour that is still used is subject to a lot of exploitation. Wages paid are quite low and the fact that most of the hired labour on a commercial farming is of a casual nature adds further to their misery. The distribution of income on such farms becomes too unfair and it tilts in favour of the owners of the farms. A commercial farm is also likely to suffer from the malady of poor supervision. A large farm will have to employ a large number of supervisors to look after the work of agricultural labourers whose area of operation is quite large. As they themselves have no incentive of ownership, they may not be fully devoted to their job. 2.2.3    State Farming This farming system is somewhat similar to the commercial farming or capitalistic farming. The only difference is with regard to the ownership of the farming, Where as in case of a commercial farm the ownership of the farm lies with a joint stock company (or in some cases with a land lord), in case of state farming, the state itself is the owner of the farm. So far as the control over production or operating of the farm is concerned, in both cases, the hired managers have the decision making power with regard to production and the hired workers work on the farm. 2.2.3.1    Advantages of State farming State farming has all the advantages of capitalistic farming. There are no financial problems for a state farm. Necessary improvements in the land can be made; improved agricultural practices can be adopted, productive assets for efficient production can be procured; wells can be dugs up, tube wells can be installed and necessary buildings and roads on the farm can be built. Commercial economies of various types can be reaped. Market surplus of food grain and raw materials required by the industrial sector are produced on such farms. The state farms, infect in some measures can be an improvement over a commercial farms owned by an individual or a joint stock company. It can substitute the motive by some social motive. That can result in a lesser use of machinery on the farms, thus displacing labour to a smaller extent when compared with a commercial farm. Exploitation, of the hired labour can also be curbed. Further as the earnings of a state farms go to fill the coffers of the Government, a part of a earned money can be Used for the welfare of the workers working on the farm. The distribution of income thus can be corrected to some extent though indirectly. Of course as in case of commercial farms managers and Supervisors on a state farm may not be fully-devoted to their jobs due to lack of incentive of ownership. It may be noted that state farming is not suitable for an open and democratic society. It works against the principles of freedom of enterprise. 2.2.4    Collective Farming This is another farming system which was introduced in U. S .S. R. Sometime after 1917 revolution. This system replaced the feudal system of farming enforced- by a communist Regime. The revolutionary regime decided that in place the feudal lords owing the land, hence fore. The village community, us a whole would own the land. The community itself would take decisions about production and itself would operate upon the land it possessed. This decision led to the emergence of what are now called collective farming. The land and other production assets are filed jointly by the village’s society. There is no individual ownership. The village community as a whole constitutes the general body of the collective farm. Its members out of themselves elect an executive-board which manages the farm. Some nominees of the Government are also represented on the executive board. The board plans the crop production and arranges for various inputs to be used on the farm and also looks after the disposal of the crops produced. It also keeps in touch with the government for seeking advice and guidance from it with regard to production on the farm and also for the produce. The board also makes arrangement for providing various social services like education, health care and entertainments to its member. Member of the village community work as labourers on the collective farm. There workers are divided into work Brigades and their work is recorded by a foreman who is elected as such by the workers themselves. As the various agricultural operations require different skill and energy, the work put in by them is standardized. Each worker is paid according to the standardized work put in by him. However, we must note that whatever the workers get is not their wages. They do not act as wage earners. They share according to the works put in the surplus which they create on the farm after paying for the intermediate inputs, depreciation and taxes and other demands made by the government. As there is no individual ownership of land, the incentive generated by ownership is missing. In order to motivate workers to put in their best other types of incentives in the form of money and in kind are offered to the workers. No doubt, the collective farming have all the advantage of a commercial farming. However they are not popular in open societies. They represent a political system and are confined to the regimented economies of Eastern Europe and China. 2.2.5    Cooperative Farming: We have earlier mentioned that the traditional system of farming no doubt has certain advantages like higher intensity of cropping, higher employment level and higher productivity per acre, it suffers from certain disadvantages due to the small size of the holding like difficulties in adopting some improved crop practices e.g. rotation of crops and difficulties in carrying out some developmental operation like fencing, digging of a-well, weak bargaining power in the market etc. To overcome these difficulties associated with small farms and at the same time, to reap the incentives of - ownership, a new system of farming has been suggested. It is known as cooperative farming. 2.2.5.1    Cooperative Farming Society When various farmers in a village pool their land together and agree to treat the pooled piece of land as one big farm for the purpose of cultivation, purchase the necessary inputs for the cultivation, and market the crops jointly, they are deemed to have formed a cooperative farming society. Such a society, for its proper working elects its office bearers on the basis of one member-one- vote. The office bearers look after the proper cultivation of new farm that emerges after the land of various farmers has been ‘pooled. The ownership of the land still lies with the respective members of the society and they can withdraw from the society whenever they so like. Besides land, the farmers also contribute various productive assets as well as their labour for the purpose of cultivations. Whereas they get rent for their land and productive assets, they get wages, for their labour. 2.2.5.2    Variants of a cooperative farming society: A cooperative farming society can take up different forms, mainly depending upon the functions which are performed co-operatively. The following are some of the important variants of a cooperative farming society. (a)    Cooperative joint farming society: The society represents the most comprehensive type of cooperative farming society. A joint cooperative farming society comes into existence when the members pool their land and oilier productive assets and carry on all the presowing the pooling and post harvesting functions besides the cultivation of the pooled land on cooperative basis. It purchases various inputs from the market and arranges for the marketing of the produce. It also seeks financial assistance from outside agencies to carry on these activities. (b)    Cooperative better farming society:  In    cooperative    better farming society, the members do not cultivate their land jointly. Each member cultivates his own land. However, they cooperative with each for pre sowing and post harvesting operation. For instance, they purchase various agricultural inputs like seeds, fertilizers, insecticides, services of machinery etc, on cooperative basis. They sell the crops jointly. A cooperative better farming society may also arrange for financial assistance for carrying on these activities. The members pay for the services rendered to them by the society. (c)    Cooperative Tenant Farming Society: This is a society which purchases or leases in land from the Government or some private persons and then in turn leases out the land to its members. The members cultivate the land and pay the rent falling to their share, to the society. The society also rends various other services to its members and charges from its members for the services so rendered. The profits earned by the society are distributed among its members according to some agreed formula. (d)    Cooperative collective farming society: This type of society involves pooling of their land by the members on a permanent basis. A member who joins this society cannot ever withdraw his land from the society. He can only transfer his land to some other person who will now become a substitute member of the society. The functions of this society are similar to those performed by a cooperative joint farming society. The member gets their wages and profits according to the labour and land respectively contributed by them. It is obvious that such a society is formed in contravention of this general principle of co-operative i.e. voluntary membership, with a right to withdraw from the society at any time. 2.2.5.3    Essential Features of a Cooperative Joint Farming Society: From the foregoing description of different variants of cooperative farming society, it is clear that the cooperative joint farming society represents the most comprehensive from of a cooperative farming society and at the same time (unlike the cooperative collective farming society) follows Strictly the principles of cooperative. We describe below the important features of such a cooperative society. 1.    Recognition of the right of ownership: Member of a cooperative joint farming retains the ownership of their land even they surrender it for joint cultivation. And in fact, this’ is the feature of the cooperative society which promotes them to join their cooperative society without any hesitation. In the villages, especially in poor, under developed countries, land is the most important symbol of social status and one will be willing to cultivate the land jointly with other and benefit from such a joint cultivation provided the ownership of land and the resultant social status remain intact. A member, as we have already stated, can withdraw from this society and resume the cultivation of his land whenever he so desires. 2.    Voluntary Membership: Another factor which encourages farmers to become a member of a cooperative joint farming society is the voluntary membership of the society. There is no compulsion for a farmer to join the society and mere is no compulsion to centime to be its members on a permanent basis. A member can withdraw from the society at any time, he so likes. Absence of an element of compulsion is likely to leave only those members with the society who believe in cooperative principles and who are loyal to the society. 3.    Democratic Management: Office bearers of a cooperative society, unlike the management of in case of capitalist farm or a state farm or collective farm, are elected democratically on the basis of one man-one vote. ‘The cooperative principle gives one vote to each individual member, irrespective of the area of land or amount of the productive assets contributed by him. Such a procedure obviously is Conducive to social equality and is likely to encourage the willing, participation of all members in attains of the society irrespective of their economic status. Another feature of the democratic management of the society is that if the members in general are unhappy with the performance of any office bearer, they can vote him out of the office. 4.    Distribution of rewards according to contribution: In order to attract both large and small farmers to it and also ensure fairness to all member the society pays to various members on the basis of the contribution in term of land and labour made towards the working of the society. There are generally two types of payment made to the members of the society; one as wages for the labour contributed towards cultivation and other activities of the society and the other as profit for the land pooled for joint cultivation. It is not necessary that the member who has pooled his land for cultivation should also work on the land. 5.    Provision of Social Services: Though the cooperative farming society is basically organized for carrying on various operations on and in connection with the pooled land, it also performs various other jobs to promote general welfare of its members. It arranges for the education for the children of its members, arranges for health care and for general entertainment of course, these are ancillary services and their provision depends upon the resources of each individual society. Provision of such services encourages the members of the society to be more loyal to it and thus works for its greater stability. 2.5.4 Advantages of Cooperative Joint Farming: Cooperative joint farming has many advantages when compared with some other forms of farming systems. Some of these advantages are as follows: (i)    Increase In the Size of the Holding : When the members agree to pool their land for joint cultivation on a cooperative basis, it will obviously result in the increase in the size of the operational holding. This will be despite the fact the land in official records, still belongs to different individuals. A larger size of the holding leads to many advantages. Various improvements in land, like drainage fencing, leveling and raising of embankment, digging of well etc. can be profitably undertaken when the size of the farm is increased. The average cost of improvement) per acre and therefore, per rupees of output falls when the land is pooled to form a bigger holding. Roads and buildings on the farm occupy a relatively smaller portion of land when the size of the farm increases, thus reducing the per acre cost of such developmental activities. Sophisticated and costly machinery can be purchased for the bigger unit of cultivation, not only because such farm can financially afford to purchase such machinery but also because it can fully utilize it. Various other economies of large scale production can also be reaped on such a farm. For instance farm begins to enjoy financial economies. Not only does the operation of bigger farm meant larger savings in the aggregate, it also becomes easy for the cooperative farming societies to get financial assistance from ‘outside sources. In the same way bulk purchase of physical inputs results in savings due to concessional rates. Marketing of a larger amount of crops increases the bargaining power of the seller and thus saves him (the society in this case) from undue exploitation by the unscrupulous functionaries of the market. (ii)    Use of non-traditional inputs: The use of non-traditional inputs like seeds, fertilizers and insecticides in agriculture is a must if it is to be transformed into a modern agriculture. Many of such inputs, however, are quite costly and their use necessitates expenditure. A cooperative farming society is in a position to purchase these inputs. Not only does its savings go up as a result of economies of large scale production that it comes to enjoy but also, it can easily borrow funds from outside on concessional rates. (iii)    Increase in Output: Output on a cooperative farm is likely to, increase even when the same technology as was being used by its members, is used for production. This is due to  more land being released  due to the disappearance of old boundaries and embankments, found in the holding of each member of the society. However, as indicated above, the technology used is likely to improve after a larger farm comes into existence due to the formation of a cooperative farming society. (iv)    Social Justice and Cohesion: We have earlier described some important features of a cooperative farming society. All these features encourage social equality and social justice. The management is elected democratically on the basis of one member-one vote. The voluntary membership of the society and freedom to withdraw from it eliminates the element of compulsion for its participation something which is resented by every individual. Association of rewards with contribution in terms of land and labour eliminates the element of exploitation and unfairness from the operation of the society. All the features of the cooperative farming society thus work for balanced and smooth relations among its members. (v)    Provision of social services: Members of a cooperative farming society not only benefit monetarily from its membership but also enjoy some other advantages. The society provides various services like educational facilities, health care and entertainment to its members. The society is able to render these services to the members out of its additional earnings. By rendering these services, the society is able to ensure the loyalty of its members towards itself. (vi)    Carrying of Off Farm Activates: The activities of a cooperative farming society are not confined to the purchase of inputs, on farms activities and the sale of agricultural crops only. There are some allied activities which are not strictly agricultural activates, but which can be profitably undertaken by the society. An individual farmer is not able to take up these activates on his own because the cost involved in these activities is quite high. These activities are in the form of various processing like rice shelling gur making etc. Such activities not only provide additional income to the members of the society bet also generate more employment opportunities for the members, some of whom may become unemployed due to use of machinery on the cooperative farming. (v)    Research: Research is again another activity which may not be undertaken by an individual because of high costs for carrying on such an activity. A cooperative farming society can spare a part of its income for carrying on research in various aspects of-the techniques of cultivation and allied activities. (vi)    Closer Contact of the Farmers with the Government: The government on many occasions needs the help of the fanners in giving effect to its various policies. ‘The cooperative farming society can serve as a very good instrument for not only disseminating information about these policies but also, for implementing such policies at the farmers level. For example, services of cooperative society can be used for distribution of various improved inputs to the farmers. It is easier to deal with a society than will the individual farmers. Infact, one of the objection at the political level against the cooperative farming society is that government can ultimately fully control and interfere with the decision making process of the farmers with regard to production, by taking over the cooperative farming society itself. In their view, cooperative farming is the first step towards the formation of a collective farmers a state farm. 2.2.5.5    Disadvantages of cooperative farming: We have already referred to a fear associated with the cooperative farming in the preceding paragraph. There are other disadvantages of cooperative fanning which are described below: (i)    Fear of unemployment: It is pointed out that there is every possibility that the total number of workers employed on individual firms taken together may come down alter the owners of these farms, organize them into a cooperative farming society. Many reasons are given for this assertion. It is pointed out, for example, that on large farms, use of machinery becomes possible. This will displace some labour. It is further pointed out that the members and the worker of these families become like hired workers on, the cooperative farm. The manager of the cooperative form treating them as such will employ them only up to the point where their marginal productivity will become equal to the prevailing wages. This will obviously mean less employment of the workers when compared with the situation when each worker of the family is treated as a free of cost labour (as in the case of a family farm) and is employed up to the point where its marginal productivity is equal to zero. There are, however, economists who do not accept these arguments. They feel that in the first instance, use of machinery, even if it is used for the farm, is completely optional. The members know their own interests. And if they feel no labour should be displaced, they may decide, not to use the machinery. Secondly, there may not be real unemployment after the co-operative farm comes into existence. There is significant level of disguised unemployment in agriculture of various economies. On a cooperative farms such a disguisedly unemployed labour may become openly unemployed. Khusro and Aggarwal put forth another argument to conclude that there should be no fear of unemployment after a cooperative farm comes into existence. They say that the concept of cooperative firming is not static in character. After a cooperative farming society comes into existence, it can take up many activities other than cultivation proper and generate new opportunities for employment. Wells can be dug up. Various other developmental activities on a farm like fencing, drainage, construction of a farm house etc, can also absorb some more labour. Use of non- traditional inputs may necessitate more labour. Various off-farms’ activities like process of agricultural products e.g. rice shelling; gur making etc. can also create more jobs. In their view, thus there are no chances, of net displacement of labour after a cooperative farm comes into existence. (ii)    Bureaucratic interference: As per the principles of cooperative, cooperative farming is voluntaryassociation, organized independently by the farmers to promote their own interest and to avoid exploitation at the hands of some unscrupulous members of the community. However, its independence is in name only. From its very inception, a cooperative farming society starts being pressurized and directed by the bureaucracy in its day to day working. This is simply because all the facilities and concessions which a ‘cooperative fanning society enjoys, either How directly from the officials of the government department or in other cases, through their help. The bureaucracy, in theory, is only expected to guide the society in its day to day working; in practice however it only directs the society to work according to him because of the privileged position it enjoys. (iii)    Difficulties in Distribution of Rewards: We have earlier pointed out that there is fairness in the distribution of rewards for the services rendered by the individual members and for mere contribution of land and other productive assets. However, this fairness is in theory only. At the practical level, there are difficulties in ensuring justice in payment to various members for their contributions. For example, land is of different nature and its standardization presents a lot of difficulties. Same is the case with the nature of labour put in. Different operations of agriculture need, different levels of skills and the member generally resent the criterion (whatever it may be) used for determining wages for different operations. (iv)    Love for Land: Love for land is responsible for the unstable existence of the cooperative farming society. Land is not only a source of living for an individual farmer but is also a symbol of status for him. The farmer is therefore, unwilling to surrender its ownership at any cost. Pooling of land, at least, means surrendering its possession, if not the ownership of land to, should pass on to somebody if some problem arises with regard to the work in of cooperative farming society. As such he will like to withdraw from the society at the very first inkling of an unsatisfactory working of the society. (v)    Lack of Responsibility: Member of cooperative society work, jointly on a co-operative farm and we know, in joint adventures, every body’s responsibility is no body’s responsibility. This is especially so in ease of farming when the area of operation for a worker is very large and supervision cannot be very effective. One may not work devotedly and then blame others for poor results. No doubt the ownership of land is still ‘with the members in a cooperative farming society, still the incentive to work is weakened, not only because his work can benefit other members but also because, part of the earnings of the farm are not distributed among members of the basis of ownership of land. This part, he earns only as a worker and obviously his behaviour as a worker is not different from that of any other worker. 2.2.5.6    Future of Cooperative Joint Farming in India: At the outset, we may point out that co-operative joint farming has no future in India under the present circumstances. The most important indicator in this regard is the progress of cooperative joint farming society in India. So far, the progress has been very unsatisfactory. It was only during the first three plans that the government tried to encourage the formation of cooperative societies. However, most of the societies organized through such an encouragement turned out to be fake societies, meant mainly to extract some concessions from the government. Since 1 974 there has been no progress so far as the formation of co-operative farming societies is concerned. The main reasons for this are the disadvantages from which the cooperative farming societies suffer. Besides this, Otto Schiller gives another reason for-the unsatisfactory progress of cooperative farming societies in India. According to him, these societies nourish in new settlements like Israel where attitude of the village people towards each other are not hardened. Cooperative of any type, according to him, do not succeed in areas where there are strong likes and dislikes on the part of the individual towards each other and these strong likes and dislikes do get developed in old settlements, with the passage of time. Otto Schiller suggests in such settlements only cooperative better farming societies can be successful. Following his suggestions one can say that in India, one may continue with the existing system of peasant farming and supplement it with cooperative better farming societies. Many economists feel that this will be the best forms of a farming system in India. Exercise 2.1 Q1 . What are different types of farming? Q2. What are the advantages and disadvantage of Cooperative Joint Farming Society? 2.3    SUMMARY Description of an enterprising system involves the narration of three elements namely ownership, control and operation. Following are the important farming systems:  (1 ). The traditional system, (2) The commercial system, (3) Collective farming and (4) Co-operative farming The Traditional System: is a system which is generally prevalent in a backward, stagnant agriculture. The main feature of this farming system can be traced to the characteristics of an "overall backward economy. Industrial sector is nonexistent and therefore the population mainly depends upon agriculture. Population pressure on agricultural, has resulted in perpetual subdivision of holdings and therefore, size of the farm is very small. In some cases, the size of the farm is so small that it is difficult for the farmer to use the family labour and other resources optimally on the farm. As agriculture is backward, there is no marketable surplus on such small farms. This system is therefore, also called subsistence farming. Commercial farming represents, as against the peasant farming, the other extreme of farming systems. Here, as against the private ownership of a farm by a single farmer, the ownership is generally in the hands of a large number of persons who form a joint stock company to own the farm. (However, commercial farming is compatible even with a single owner if he can own a large farm-large enough, as to necessitate the use of hired labour), so far as the control of over production i.e. decision making power with regard to production is concerned it is generally in the hands’ of employed managers. The hired labourers operate the farms. They constitute a class different from that of the managers who supervise the work. In India, various tea and coffee plantations are the fine examples of commercial farming. State Farming Is a farming system is somewhat similar to the commercial farming or capitalistic farming. The only difference is with regard to the ownership of the farming, Where as in case of a commercial farm the ownership of the farm lies with a joint stock company (or in some cases with a land lord), in case of state farming, the state itself is the owner of the farm. So far as the control over production or operating of the farm is concerned, in both cases, the hired managers have the decision making power with regard to production and the hired workers work on the farm. Collective Farming is another farming system which was introduced in U. S .S. R. Sometime after 1917 revolution. This system replaced the feudal system of farming enforced- by a communist Regime. The revolutionary regime decided that in place the feudal lords owing the land, hence fore. The village community, us a whole would own the land. The community itself would take decisions about production and itself would operate upon the land it possessed. This decision led to the emergence of what are now called collective farming. The land and other production assets are filed jointly by the village’s society. There is no individual ownership. The village community as a whole constitutes the general body of the collective farm. Its members out of themselves elect an executive-board which manages the farm. Some nominees of the Government are also represented on the executive board. The board plans the crop production and arranges for various inputs to be used on the farm and also looks after the disposal of the crops produced. Member of the village community work as labourers on the collective farm. There workers are divided into work Brigades and their work is recorded by a foreman who is elected as such by the workers themselves. As the various agricultural operations require different skill and energy, the work put in by them is standardized. Each worker is paid according to the standardized work put in by him. However, we must note that whatever the workers get is not their wages. They do not act as wage earners. They share according to the works put in the surplus which they create on the farm after paying for the intermediate inputs, depreciation and taxes and other demands made by the government. Cooperative Farming: When various farmers in a village pool their land together and agree, to treat the pooled piece of land as one big farm for the purpose of cultivation, purchase the necessary inputs for the cultivation, and market the crops jointly, they are deemed to have formed a cooperative farming society. Such a society, for its proper working elects its office bearers on the basis of one member-one- vote. The office bearers look after the proper cultivation of new farm that emerges after the land of various farmers has been ‘pooled. The ownership of the land still lies with the respective members of the society and they can withdraw from the society whenever they so like. Besides land, the farmers also contribute various productive assets as well as their labour for the purpose of cultivations. Whereas they get rent for their land and productive assets, they get wages, for their labour. 2.4    GLOSSARY •    Commercial farming represents, as against the peasant farming, the other extreme of farming systems. Here, as against the private ownership of a farm by a single farmer, the ownership is generally in the hands of a large number of persons who form a joint stock company to own the farm. (However, commercial farming is compatible even with a single owner if he can own a large farm-large enough, as to necessitate the use of hired labour), so far as the control of over production i.e. decision making power with regard to production is concerned it is generally in the hands’ of employed managers. The hired labourers operate the farms. They constitute a class different from that of the managers who supervise the work. •    The Traditional System: This is a system which is generally prevalent in a backward, stagnant agriculture. The main feature of this farming system can be traced to the characteristics of an "overall backward economy. Industrial sector is nonexistent and therefore the population mainly depends upon agriculture. Population pressure on agricultural, has resulted in perpetual subdivision of holdings and therefore, size of the farm is very small. In some cases, the size of the farm is so small that it is difficult for the farmer to use the family labour and other resources optimally on the farm. As agriculture is backward, there is no marketable surplus on such small farms. This system is therefore, also called subsistence farming. Large size of the family makes agricultural labour intensive. The capital used on the land is of crude, form. •    State Farming: This farming system is somewhat similar to the commercial farming or capitalistic farming. The only difference is with regard to the ownership of the farming, Where as in case of a commercial farm the ownership of the farm lies with a joint stock company (or in some cases with a land lord), in case of state farming, the state itself is the owner of the farm. So far as the control over production or operating of the farm is concerned, in both cases, the hired managers have the decision making power with regard to production and the hired workers work on the farm. •    Cooperative joint farming society: The society represents the most comprehensive type of cooperative farming society. A joint cooperative farming society comes into existence when the members pool their land and oilier productive assets and carry on all the pre-sowing the pooling and post harvesting functions besides the cultivation of the pooled land on cooperative basis. It purchases various inputs from the market and arranges for the marketing of the produce. It also seeks financial assistance from outside agencies to carry on these activities. •    Cooperative Tenant Farming Society: This is a society which purchases or leases in land from the Government or some private persons and then in turn leases out the land to its members. The members cultivate the land and pay the rent falling to their share, to the society. The society also rends various other services to its members and charges from its members for the services so rendered. The profits earned by the society are distributed among its members according to some agreed formula. •    Cooperative collective farming society: This type of society involves pooling of their land by the members on a permanent basis. A member who joins this society cannot ever withdraw his land from the society. He can only transfer his land to some other person who will now become a substitute member of the society. The functions of this society are similar to those performed by a cooperative joint farming society. The member gets their wages and profits according to the labour and land respectively contributed by them. It is obvious that such a society is formed in contravention of this general principle of co-operative i.e. voluntary membership, with a right to withdraw from the society at any time. 2.5    Answers to self-check Exercises Answer 1 . Refer to section 2.2. Answer 2. Refer to section 2.2.5. 2.6    SUGGESTED READINGS 1.    R.N. Soni: Issues in Agricultural Economics, Shoban Lal Nagin Chand & Co. Jallandhar. 2.    Niehols, W.H. Eicher, and L. Wil (ed): “The Place Of Agriculture In Economics Development. Bombay, vora & Co. 3.    Kuznets, S: Economic growth and Structure. New Delhi, Oxford. 2.7    TERMINAL QUESTIONS Q1. What are the five types of farming system? Explain each system in Detail? UNIT-03FARM SIZE & PRODUCTIVITY DEBATE STRUCTURE 3.0 Objective 3.1    Introduction 3.2    Farm size and Productivity Relationship in Indian Agriculture 3.3    Explanation of the Inverse Relationship: 3.3.1    Intensity Based Explanations 3.3.2    Quality Based Explanations 3.3.3    Green Revolution and the Inverse Relationship: 3.4    Policy Implications 3.5    Summary 3.6    Glossary 3.7    Answers to self-check Exercises 3.8    Suggested Readings 3.9    Terminal Questions 3.0 OBJECTIVE After going through this lesson you will be able to: •  Establish Farm size and Productivity Relationship in Indian Agriculture •  Explain the Inverse Relationship between Farm size and Productivity •    Narrate the Policy implications 3.1    INTRODUCTION One of the hotly-debated issues in Indian agriculture since the publication of the farm management survey data for the fifties was the relationship between farm size and productivity. This debate was initiated by A.K. Sen in 1962 and he argued that an inverse relationship between farm size and productivity existed in India i.e. as the size of holdings increases, productivity declines. This conclusion was reached at on the basis of data presented in the Farm-management-surveys concluded in different parts of the country. 3.2    FARM SIZE AND PRODUCTIVITY RELATIONSHIP IN INDIAN AGRICULTURE The main issues involved in the debate on farm size and productivity are nicely summed up in the following three observation made by Amartya Sen. (1)    “When family labour employed in agriculture is given an imputed value’ in the terms of the ruling wage rate much of Indian agriculture seems un-remunerative”. (2)    By and large, the profitability of agriculture increases with the size of holding ‘profitability’ being measured by the surplus or deficit of output over costs including imputed value of labour. (3)    By and large productivity per acre decreases with the size of holding”. A devasting critique of the position came from Ashok Rudra who joined the debate in 1960 in a series of two articles entitled “Farm size and yield per hectare” and “More are returns to scale in Indian agriculture” appearing in special Number, July 1968 and Oct 26,1968 issues of' Economic and Political Weekly. Whereas Sen Khusro, Rao, Saini and others were victims of tendency to indulge in sweeping generalization about the whole economy based on some regional data. Rudra Dutt was more cautious and vigilant in drawing conclusions. He argued that while such relationship may be held in certain areas, it is not a universal phenomenon and cannot be said to operate in all parts of the country. Krishana Bharadwaj and A.P. Rao’s study was based on disaggregated data and logarithmic linear function was fitted to farm level data all belonging to the same village. The study showed that farm productivity remained constant over all the holding sizes. Kishana Bharadwaj study concluded that (a) an inverse relationship while not supported invariably is not rejected either and (ii) there is “no” significant relationship between per acre yield of individual crops and the size of holding. However, since the introduction of the new wheat technology in the mid-sixties, reinforced by the new rice technology in the early, seventies, the inverse relationship between farm size and productivity is believed to have undergone a change. Chadha’s study shows that under the impetus of technological changes, crop yield rates, overall yield rates and productivity have all increased for each farm size category. However, their rates of change have not been uniform along the farm size. For some crops, smaller holdings might still have an edge of higher yield rates. Yet, as a matter of fact, yield rate differences have either disappeared or become narrower. Most importantly, the slope of the statistical relationship between farm size and cropping intensity has become smaller. 3.3    EXPLANATION OF THE INVERSE RELATIONSHIP: Explanation for the existence of inverse relationship between farm size and productivity has been broadly divided into two categories: (i) intensity based and (ii) quality based. 3.3.1    Intensity Based Explanations: The most important explanation advanced in this regard, is in terms of low opportunity cost of family labour. This argument was put forward by A.K. Sen according to whom the small farmers do not use hired labour. It is based on the argument that the smaller farms characterized by peasant family cultivation extend the input labour right up to the point where the marginal product of labour is zero (i.e. point E) in the accompanying diagram at least much below the ruling market wage rate. On the larger farms labour will be employed only till the point where the marginal productivity becomes equal to the wages paid to the labour. Hence the similar farms have higher productivity per acre. Accordingly, the labour land ratio is higher for small farms and thus keeping the productivity more as compared to larger farms. Sen’s explanation is based on the assumption that, there are no outside, opportunities for family labour, and accordingly, its opportunity cost is zero. The assumption on which Sen’s explanation is based is not sufficient to explain the inverse relationship on the following grounds. (i)    A small farmer will not consider his labour as available at zero prices if the peasant family farming coexists in the region. (ii)    Peasant family farmers even at the bottom of the scale hire labour at the margin and even derive income from employment of family labour in alternative occupations. (iii)    There also exists strong empirical evidence that the opportunity cost of labour on the smaller farms is not significantly different from market wage rate. Deepak Majumdar, A.M. Khusio and Krishana Bharadwaj have put the arguments that small farmers make a more intensive use of their inputs as compared to large .farmers because they are faced with the compulsion of providing for themselves and their families from whatever small holdings they possess. As against this, the large farmers are not faced with any such compulsion and consequently do not use their inputs as intensively as small farmers. Some economists like Prannoy Roy, try to explain this inverse relationship between farm size and productivity by saying that this extra labour on small farms is used for increasing the cropping intensity of the small farms. Prannoy Roy, Infact, points out that there is not much difference of the yield per acre on small and large farms but the gross value of output of an acre of small farm is more than that on a large farm because of higher cropping intensity on small farms. C.H. Hanumanlha Rao and Krishana Bharadwaj has tried to explain the inverse relation of farm size and productivity with the help of higher intensity of irrigation in smaller farms resulting into higher cropping intensity. Krishana Bharadwaj finds a statistical inverse relation between the level of irrigation and the size of holding in a number of areas. C.H. Hanumanlha Rao has argued that larger farmers give more preference to leisure as compared to small fanners because their needs are more easily met and there is no economic compulsion for them to work more. 3.3.2    Quality Based Explanations: Khusro advanced the hypothesis that the productivity differences are due to differences in the fertility of soil. One of the most plausible hypothesis of a negative response of gross, output per acre and farm business per acre to changes in acreage is due to the fact that as farm size expands the proportion of bad and indifferent land to total land increases resulting into the decrease in per acre output and farm income. A.M. Khusro and C.H. Hanumantha Rao have also advanced another reason for the higher productivity per acre on small farms. This is based upon the hypothesis that indivisible factors have a higher impact on small farms as compared to large farms. Large farms may have more leased in land. If there are tenurial disincentives, productivity may be adversely affected. Explanations based on tenurial disincentives and absentee land lordships have been advanced by Khusro, Rao, Krishana Bharadwaj and S.Chakravarti. Jagdish Bhagwati and S.Chakravarty have explained the inverse relationship due to fragmentation resulting into better quality lands, left with small' farmers as they sell poorer quality of land to large farmers. For example Krishana Bharadwaj writes. “A possible explanation in terms of tenant-landlord relation may be suggested here. It may he argued that when a tenant due to financial stringency can afford to leasein land, he may look for better quality of land less prone to risk of crop failure. Although land values and or rents may capitalize the productivity differentials (possible more than capitalize considering the tenant’s weak bargaining position), for the tenant the risk of a poor crop may work out much higher than the additional cost of tenancy, at the mere subsistence level. An even more likely situation would be that landlord himself prefers to parcel out this land into small tenant holdings, especially when they are of better quality land. The landlord strategy is to exploit the quality advantage to the maximum by controlling the size of leased-out parcel”. 3.3.3    Green Revolution and the Inverse Relationship: The new agricultural technology consists of some bio-chemical and mechanical innovations, high yielding seeds, chemical fertilizers and pesticides are examples of bio-chemical innovations. Tractors, threshers, harvesters etc., are examples of bio-chemical innovations which are generally labour using and land saving are neutral to the scale of operation. Mechanical innovations are generally labour displacing and biased to scale. The introduction of these innovation has, on the one hand, increased the capital intensity of farm production in general arid-on the other, changed both the quantum as Well as the composition on farm capital. However, since the introduction of the new wheat technology in the mid sixties reinforced by the new rice technology in the early seventies, the increases farm size productivity relationship is believed to have undergone a change. Under the impact of new technology which is essentially capital based, the productivity advantage hither to enjoyed by the small farmers with relative abundance of family labour started moving in favour of the large farms which have relative abundance of and also a more easy access to capital. There is strong evidence that after green revolution in India, the inverse relationship started yielding place to at least a constant relationship if not a positive relationship between farm size and productivity. On the other hand, the large amount of labour on small farms is accompanied by a less than proportionate increase in capital input leading to a lower capital labour ratio. This development suggests a greater potential for large farms as regards productivity per acre. During the fifties, the inverse relationship continued for each of the three years in the Amritsar, Ferozepur regions of the Punjab state. A few years later (1974-75), the negative sign of the regression coefficient had changed to a positive sign although, it was not statistically significant. G.K. Chadha (1978) which looks at farm level data for three agro-climatic regions in the Punjab for the year 1969-70 found that the inverse relationship had ceased to hold in the more dynamic zones, particularly in the central zone dominated by tube well irrigated maize cultivation. There is a Ghosh’s 1979 re-examination of the FMS data which argues that an essential condition for the existence of the inverse relationship phenomenon is technological backwardness. And then we have the compendious work by Berry and Cline (1979) which surveys the inverse relationship evidence in a wide range of countries. We also have an important study from the Indus basin of Pakistan by M. Khan (1979) which again provides evidence of a breakdown of the inverse relationship following the introduction of new agricultural technology. Sen and Rudra also reviewed this controversy in 1980 and they found that the inverse relationships got weaken or even disappeared in areas using new technology. Recently Madhusudan Ghosh has also confirmed that the inverse farm size productivity relationship is found to be reversed in areas experiencing technological change. Farm Size farm productivity re-examined in the case of rural Egypt by Graham Dyer (1991) shows that increase relationship may hold in static context of a relatively backward situation and it breaks down with advancing levels of technological innovations. A major policy implication of inverse relationship, frequently suggested, is for a small farm bias in agricultural development strategy. Adiqa Kausar Kiani’s (2008) study found a negative but insignificant correlation between output per acre and farm size. The study found that the small and large farm size have higher land productivities than middle farms. The study showed that high productivity on small farms was due to the intensive labour and irrigation use where as on large farms, it was due to the usage of maximum capital. Low productivity in the case of middle farms was due to inefficient combinations of inputs. Burdhan’s explanation was a little different. According to him the higher productivity on large farms was not of modem inputs alone but due to the use of total inputs. The amount of inputs used per-acre was higher on smaller farms during the fifties as compared with that large farm. After the green revolution, more inputs per acre were used on large farms resulting into reverse relationship. It is necessary to point out that if all farms irrespective of their size, Use the same technology, the inverse relation hypothesis is most likely to be confirmed. The general conclusion to emerge is the diversity of Indian agriculture, regarding the existence of the negative relation between size and productivity, ‘the negative relation may held in certain .parts of the country at certain times but not everywhere not at all times’. It also appears that even that even when the inverse relationship holds, it may hold in certain ranges but riot in others, and in many cases it is noticeable ‘only for small classes’. While counting the different regions one would find that the inverse relation is more frequently confirmed than rejected, it would be a mistake to take it to be an empirical generalization for Indian agriculture as a whole. In a recent contribution Manabendu Chattapadhya and Atanu Sengupta (1997) purport to show that the inverse relationship between farm size and output per hectare seems to have been strengthened in the agriculturally developed regions of West Bengal computed to the relatively less developed regions. Their study is based on disaggregated farm level sampled data collected from six agro-climatic zones across the state of West Bengal pertaining to the period 1989-90 and found a negative association between farm size and output per hectare. Those results run against much of the evidence from India and abroad which suggests a breakdown in the inverse relationship, with higher level of capitalistic development in agriculture. 3.4    POLICY IMPLICATIONS: The controversy regarding the inverse relationship between farm size and land productivity is not merely one of academic interest but of fundamental significance from the point of view of economic policy. The question is important because it raised several significant issues regarding the choice between small family labour based peasant krros, large hired labour based “Capitalist Farms” and large co-operative farms. Policy implications will differ depending on whether we treat the inverse relationship as indicating. Higher efficiency of small farmers regards it as a phenomenon reflecting conditions of stress on small farms. C.H. Hariumantha Rao and V.M. Dandckar have suggested that small farms would be most suitable for India. However, this suggestion was not easy to implement as imposition of ceiling on land holding has been evaded for one reason or the other. Since some recent studies have confirmed the reversal of this farm productivity relationship the case for small farms can no longer be advocated on the basis of productivity. Though, it can still be advocated on the basis of social justice. Recently it has been observed that planning authorities in India' are indifferent towards the redistribution of land. Now logically there should be more emphasis on the creation of larger farms, an increase in the production is the major objective of farm policy. By and large it may be accepted that small farms of economic size are more efficient than large farms and help in promoting social harmony in the country. Promoting large farms would adversely affect the interest of small farmers and may create distress among them which may result into the distress sale of their holdings. This would swell the already large army of landless in the country. Exercise 3.1 Q1 . What is relationship between farm size and Productivity? Q2. Quality Based Explanations of Inverse Relationship between farm size and Productivity? 3.5    SUMMARY One of the hotly-debated issues in Indian agriculture since the publication of the farm management survey data for the fifties was the relationship between farm size and productivity. This debate was initiated by A.K. Sen in 1962 and he argued that an inverse relationship between farm size and productivity existed in India i.e. as the size of holdings increases, productivity declines. This conclusion was reached at on the basis of data presented in the Farm-management-surveys concluded in different parts of the country. The main issues involved in the debate on farm size and productivity are Rudra Dutt was more cautious and vigilant in drawing conclusions. He argued that while such relationship may be held in certain areas, it is not a universal phenomenon and cannot be said to operate in all parts of the country. Krishana Bharadwaj and A.P. Rao’s study was based on disaggregated data and logarithmic linear function was fitted to farm level data all belonging to the same village. The study showed that farm productivity remained constant over all the holding sizes. Kishana Bharadwaj study concluded that (a) an inverse relationship while not supported invariably is not rejected either and (ii) there is “no” significant relationship between per acre yield of individual crops and the size of holding. However, since the introduction of the new wheat technology in the mid sixties, reinforced by the new rice technology in the early, seventies, the inverse relationship between farm size and productivity is believed to have undergone a change. Chadha’s study shows that under the impetus of technological changes, crop yield rates, overall yield rates and productivity have all increased for each farm size category. However, their rates of change have not been uniform along the farm size. For some crops, smaller holdings might still have an edge of higher yield rates. Yet, as a matter of fact, yield rate differences have either disappeared or become narrower. Most importantly, the slope of the statistical relationship between farm size and cropping intensity has become smaller. The controversy regarding the inverse relationship between farm size and land productivity is not merely one of academic interest but of fundamental significance from the point of view of economic policy. The question is important because it raised several significant issues regarding the choice between small family labour based peasant krros, large hired labour based “Capitalist Farms” and large co-operative farms. 3.6    GLOSSARY •    Productivity:   A measure of the efficiency of a person, machine, factory, system, etc., in converting inputs into useful outputs. Productivity is computed by dividing average output per period by the totalcosts incurred or resources (capital, energy, material, personn el)    consumed     in    that    period.     Productivity    is    a critical determinant of cost efficiency. •    Capitalist Class: The group of individuals (representing just a couple of percent of the population in advanced capitalist countries) which owns and controls the bulk of private corporate wealth, and which as a result faces no compulsion to work in order to support them. •    An agricultural cooperative: also known as a farmers' co-op, is a cooperative where farmers pool their resources in certain areas of activity. A broad typology of agricultural cooperatives distinguishes between agricultural service cooperatives, which provide various services to their individually farming members, and agricultural production cooperatives, where production resources (land, machinery) are pooled and members farm jointly. •    Green Revolution refers to a series of research, development, and technology transfer initiatives, occurring between the 1940s and the late 1960s that increased agriculture production worldwide, particularly in the developing world beginning most markedly in the late 1960s.[1] The initiatives, led by Norman Borlaug, the "Father of the Green Revolution" credited with saving over a billion people from starvation, involved the development of high-yielding varieties of cereal grains, expansion of irrigation infrastructure, modernization of management techniques, distribution of hybridized seeds, synthetic fertilizers, and pesticides to farmers. The term "Green Revolution" was first used in 1968 by former United States Agency for International Development (USAID) director William Gaud, who noted the spread of the new technologies: "These and other developments in the field of agriculture contain the makings of a new revolution. 3.7    Answers to self-check Exercises Exercise 3.1 Answer 1 . Refer to section 3.2. Answer 2 Refer to section 3.3.2. 3.8    SUGGESTED READINGS 1.    R.N. Soni: Issues in Agricultural Economics, Shoban Lal Nagin Chand & Co. Jallandhar. 2.    Mishras & Puri (2006): “Indian Economy”, Himalayan Publishing House New Delhi. 3.    G.R Saini (1971): “Holding Size, Productivity And Some Related Aspects Of Indian Agricultural “EPW”, June 26. 4.    Graham Dyer (1998): “Farm Size and Productivity; A new Look at the old debate” EPW, June 27. 5.    Adiqa Kausar Kiani: “Farm Size and Productivity in Pakistan” European Journal of Social Sciences Vol.7 No-2 (2008). 3.9    TERMINAL QUESTIONS [Q1 . Examine the Farm size and Productivity Relationship in Indian Agriculture? Q2. Suggests some Policy Implications for Farm size and Productivity Relationship? UNIT-04 LAND REFORMS IN INDIA STRUCTURE 4.0 Objectives 4.1    Introduction 4.2    Government Measures 4.3    Concepts Distinguished 4.3.1    Land Reforms 4.3.2    Agrarian Reforms 4.3.3    Rural Development 4.4    Meaning and Objectives of Land Reforms 4.5    Step needed for Land Reforms 4.6    Dimension of Land Reforms 4.7    Land Reforms Policy under Five Year Plans 4.8    Land Reform Legislation and Implementation 4.8.1    Abolition of Intermediaries 4.8.2    Tenancy Legislation 4.8.3    Ceiling Legislation 4.8.4    Exemptions have been permitted in the following cases 4.8.5    Consolidation of Holdings 4.9    Reasons for poor performance 4.10    Summary 4.11    Glossary 4.12    Answers to self-check exercises 4.13    Suggested Readings 4.14    Terminal Questions 4.0 OBJECTIVES Studying this chapter should enable you to understand: •    Meaning and Rationale of Land Reforms in India •    Components of Land Reforms •    Appraisal and Progress of Land Reforms in India 4.1    INTRODUCTION Land reform usually refers to redistribution of land from the rich to the poor. More broadly, it includes regulation of ownership, operation, leasing, sales, and inheritance of land (indeed, the redistribution of land itself requires legal changes). In an agrarian economy like India with great scarcity, and an unequal distribution, of land, coupled with a large mass of the rural population below the poverty line, there are compelling economic and political arguments for land reform. Not surprisingly, it received top priority on the policy agenda at the time of Independence. In the decades following independence India passed a significant body of land reform legislation. The 1949 Constitution left the adoption and implementation of land and tenancy reforms to state governments. This led to a lot of variation in the implementation of these reforms across states and over time, a fact that has been utilized in empirical studies trying to understand the causes and effects of land reform. 4.2    GOVERNMENT MEASURES At the time of independence, India inherited a semi - feudal agrarian structure with onerous tenure arrangements over substantial areas. The ownership and control of land was highly concentrated in a relatively few landlords and intermediaries. The principal interest of this controlling group in agriculture was to extract maximum rental from tenants, cither in cash or in kind. Under this arrangement, economic motivation to develop farm land for increased production or to improve the economic conditions of cultivators was lacking. At the same time, working cultivators after paying high rent had not surplus to invest in farm improvement. They had neither resources nor knowledge for increasing agricultural production. Thus the agricultural land resource of India, along with its operators was gradually impoverished because economic motivation tended toward exploitation rather than toward investment and improvement. With increasing pressure on land the operating land base of many working cultivators was further reduced. Land occupancy rights became increasingly insecure often cultivators were continuously shifted from one plot to another according to the whims of superior holders. India thus emerged with serious imbalances man-land relationship among the three principal groups in the agricultural sector, viz., proprietors, working cultivators and labourers. Following independence, land reforms as well as the abolition of intermediaries was considered an essential prerequisite for increasing agricultural production. Land reform has been defined as an integrated programme of measures designed to eliminate obstacles to economic and social development arising out of defects in the agrarian structure. 4.3    CONCEPTS DISTINGUISHED 4.3.1    Land Reforms: Land reform is concerned with changing the institutional structure governing man’s relationship with land. In the main, land reform is seen as a means of bringing about structural changes in the agricultural sector, thereby altering the size, distribution of holdings or the distribution of income. 4.3.2    Agrarian Reforms: Agrarian reform is a much more comprehensive concept than land reform, since it involves modification of a wide range of conditions that affect the agricultural sector. These modifications might include changing price policies so as turn the terms of trade in favour of the agricultural sector increasing, allocations to agricultural sector in order to expand research, extension, training and storage facilities making physical supplies such as fertilizers, available and increasing credit for their purchase; or providing infrastructure for facilitate agricultural production. Agrarian reform may or may not include land reform. In some instance, there may be no need for land reform since land is already evenly distributed. In other cases, it may not be politically feasible to have land reform-although it might be both politically and economically feasible to raise output through the measures involved in agrarian reform. Tin-point is that land reform may be a necessary condition for agrarian reform, but it is seldom a sufficient condition for agrarian reform. The point is that land reform may be a necessary condition for agrarian reform, but is seldom a sufficient condition for increasing agricultural output since land is only one factor of production. 4.3.3    Rural Development: Broader still is the concept of rural development, because it embraces all dimensions’ of the rural sector (agricultural and non-agricultural) and is more concerned with the welfare of rural people than with agricultural output or productivity as an end in itself. Since it has significant equity implications, land reform may be a necessary condition of successful rural development depending the prevailing pattern of land control, where the ownership of land directly affects the nature of local institutions and the participation in them by the majority of rural people. Land reform may be essential. However, in terms of implementations, in some situation establishing institutions’ and small holder services may be a prerequisite of land reform rather than vice versa. Where existing service systems and administrative structure is geared to working with large scale “farmers, land reform without concurrent rural development activity might cause hardship and economic losses which would outstrip the equity gains associated with land redistribution. Tenancy reform, on the other hand, in so far as it stabilizes the existing relationship between landowners and tenants may be a useful precursor of rural development programs. 4.4    MEANING AND OBJECTIVES OF LAND REFORMS Land reforms involve intervention in the prevailing pattern of land ownership, control and usage in order to change the structure of holdings, improve land productivity and broaden the distribution of benefits. In practice, land reform is pursued in response to political pressures for socio-economic change arising from factors such as increased population, pressure on a limited land base or an ideology of egalitarianism based on a more even distribution of land or income Land reforms by its very context has interlinked political, economic and social dimensions which in turn have significant implications for development. Land reforms necessarily imply many different kind of adjustments in an array of situations where there are great variations in individual equity and agricultural productivity. In most instances, social or equity considerations are the main concerns. Thus, when there are exploitative land lord tenant systems, reform incorporates changes in the rights of tenants, redistribution of ownership to existing tenants or the replacement of the landlord. When individual ownership of the market economy type is the norm but the distribution of land is skewed, reform may require subdivision of large holdings. Where, holdings fragmented and appropriate reform might involve consolidation of holdings without change in the patterns of ownership of land. Elsewhere, land reforms might involve changing tenancy arrangements with emphasis on providing security to tenure so as to encourage on farm investment. Again, these do not require redistribution but eventually lead to a more economic development as well as social justice. There are situations where land reform is a necessary precondition for modifying the structure of a society and raising agriculture agricultural output. However while land reform in itself may be necessary, it alone is not sufficient for improving hand productivity and distribution of income. Changes in patterns of landownership will not automatically lead to an increase in output or technological change in agriculture. These will come about only if adequate provision is made for the, supply of necessary inputs and mandatory services to the users of the land Indeed, the organization program is essential, especially where the process of reforms lead’s, to a breakdown of the institutional structure of agriculture and leaves nothing on its place, Finally, it must be recognized that a policy for land reform for a given situation cannot be stated in simple terms. Any policy involves fundamental Judgments about the adequacy of an existing system and the most appropriate alternative. The judgments of policy makers differ clearly, the policies followed are not a matter of economy alone. They also reflect policies and ideology, and reach far beyond any purely economy calculus. National Commission of Agriculture (1976) has observed that defective land tenure is a hindrance to intensive application of labour, increased production through a labour, intensive modem technology requires a high degree of social and economic equality among the rural population. Land reform as means of improving distributive justice is likely to have desirable effect on raising the productivity of agriculture labour through extended employment, higher income and consumption. To ensure, therefore, that the small farmers and landless labour are also able to share the new opportunities provided by modern technology, land reforms must constitute the basic ingredient in the process of modernization. Without it appropriate measures to protect the poor test sections of agricultural population, the introduction of improved technology can only result in increasing disparities and can lead to a dangerous disequilibrium in the rural economy and the rural society. However, the effect of land reforms can best be examined by focusing on particular measures, such as the effect of farm size on productivity, equity and employment as well as on savings and market surplus. These measures are inter-related. On 13 countries study undertaken by the FAO analyzed the relations among size of holding, concentration, of land and productivity. A similar study of 40 countries was undertaken by the World Bank. ’ Both studies indicated that a smaller average size of holdings, and lower concentration of landownership were associated with an increase in output per hectare. Similar findings can be cited from cross section studies in a number of individual, countries. However, there is no claim that all conditions were identical. The studies simply indicated that the yields were higher on small farms than, on large farms. The important implication is that reduction’s in either the size of holdings or land concentration needs not the associated with a reduction in output per hectare. On the country, it appears that under controlled circumstances output per hectare is likely to be higher. There are two associated reasons for this assumption. First, there are limited economics of scale in most agricultural production. Secondly, small scale producers tend to maximize output by applying labour intensively, while large scale operators tend to maximize profits by using hired labour only until incremental production covers incremental costs. This is usually short of the output per hectare that would be produced if the goals were maximization of output. In broad terms land reforms can be consonant with development from a point of view concerned purely with productivity, with output per hectare as the relevant criterion. Output per worker, however, is likely to decrease for the similar reason that smaller farms would employ more labour per Hectare. In other words, the large income would be shared by an even large number of families. This decline in labour productivity only reflects the employment and equality benefits of land reform the same land would supply mere, people and trio income generated would be more widely shared. Evidence exists that the use of labour per hectare is greater on smaller holdings than on large ones. More intensive labour use is the main reason why small farms are able to produce more per unit of land than the large, farms. But inputs other than labour are also likely to be applied more, intensively on small farms, unless access to these inputs is blocked by institutional arrangement. The equity effect of land reforms will be significant only: (1)    The effective ceiling in law (2)    The beneficiaries belong to the poorer groups; (3)    The extension and (non land) input distribution system favours the beneficiaries; owned and self-operated land as well a leased land is redistributed. .Opportunities for the redistribution of land depends to a great extent on the existing pattern of distribution of holdings and population density. Thus, the Sixth Five Year Plan (Î980-85) has stated that the objectives of the land reforms policy in the successive Plan have been to remove such impediments to agricultural development as arise from agrarian structure inherited from the past and to eliminate exploitation and social injustice within the agrarian system so as to ensure equality of tenurial status and opportunity to all. 4.5    STEP NEEDED FOR LAND REFORMS Experience with land reform in the past points to the overriding importance of political factor in securing meaningful change. A second factor of importance making reforms effective is a creation of institution to implement the reforms once legislated, and to press for continuing development. This has usually involved organizing the beneficiaries to create follow up pressure. A third conclusion is that land reforms is rarely undertaken without considerable upheaval and loss of production, although there is evidence to suggest that there costs can be kept small and temporary The restructuring of land holdings is often accompanied by the destruction of traditional delivery system for input needs and marketing since these system are almost always tied to the operations of the large farmers who are dispossessed. Because of this, rather than because of and deficiency inherent in the small relative to the large farmers land reforms have often proved costly in terms of lost outputs. Minimizing such necessitates the provision of services concurrently with reforms implementation incorporating as much forward planning as feasible. A fourth consideration relate to the problem of perspective over time, in assessing the effects of Land reforms. Thé effectiveness of land reforms may be relatively limited in the short run and m any socioeconomic benefits, as are associated with greater social mobility and improved political stability, emerge only in the longer run and accrue for many years subsequently 4.6    DIMENSION OF LAND REFORMS: Land reforms are thus concerned with the interrelated aspects of productivity and equity of land use. It is frequently pursued as a goal in itself, but in a development context it is usually seem as a part of agrarian reform or the rural development programs. The main elements of the land reforms policy in India have been fivefold, viz. ’ (i)    abolition of intermediary tenures ; (ii)    tenancy reforms comprising regulation of rent, security of tenures and conferment of ownership rights on tenants; (iii)    ceiling on land holdings and distribution of surplus land; (iv)    consolidation of holding ; and (v)    Compilation and updating of land records. India favoured a policy of curtailing (not eliminating landlord) and promoting conversion of non-cultivating landlords into cultivating landlords. So far as the peasants were concerned, it favoured a policy of upgrading the upper layer of tenants, and of giving some relief to other tenants, Here then was a policy of promoting a class of owner cultivators both from among the tenant classes. This was expected to provide the social framework for economic development and for economic and social stability. This was the basic orientation of the land policy laid down in the Five Year Plan in India, “It must be emphasized”, as has been remarked by Professor P.C. Joshi (1971 .) “that this policy framework was sufficiently broad to permit both a relatively more radical’ or a-more conservation direction, a more tenant oriented or a more landlord-oriented direction, to an agrarian reform programme, as and when dictated by the exigencies of a situation.” 4.7    LAND REFORMS POLICY UNDER FIVE YEAR PLANS Land Reforms- policy was concretized at the topmost Governmental level for the first time in the First Year Plan. The plan acknowledged the achievement in the abolition of intermediaries and emphasized high priority for agriculture production, diversification of agricultural economy and a land policy to reduce disparities in wealth and income, eliminate exploitation, provide security for tenant and worker and promise equality of status and opportunity to different sections of the rural population. Regarding tenanted lands, it considered a rate of rent within one fifth of the produce as for. It commended the principal of fixing an upper limit on individual holdings and allowed resumption of land from an upper limit on individual holdings and allowed resumption of land from the sharecroppers for cultivation of members of the family of landowners up to three family holdings. It was ensured, however, that displaced tenants had a minimum holding for cultivation. The question of ceiling on land holdings, however, remained in the background during the first few years in ‘ the belief mat higher agricultural production was possible only through large scale farming using modem techniques. In Subsequent years, this question continued to gain ground as the pressure of population on land grew and landlessness among the agricultural population increased while the land distribution pattern remained highly uneven and socially inequitable. The objectives of land reforms as laid down by the second Plan is, therefore to remove such impediments to agricultural production as arose from the agrarian structure and to create conditions for evolving an agrarian economy with high levels of efficiency and productivity. The thinking of planners (of the Second Plan) was greatly influenced by the recommendations of the Panel of Land. Reforms set up in 1 955, which marked an-important stage in the evaluation of land reforms policy. The Second Plan stressed on the abolition of landlord-tenant nexus and pointed out the large variations the degree of practical implementation of tenancy reforms in different regions. It also referred to the large scale- eviction of tenants and the ‘voluntary surrenders’ on ground of resumption for personal cultivation. The Plan admitted that malafied transfers of land to circumvent ceilings on holdings had taken place and recommended that these cases be reviewed and the question be considered whether the ceiling should determine whether the transfer had taken place or not. The Third Five Year Plan reiterated the policy outlined in the first two plans and generally slated the idea of setting up a “Socialist pattern of society” and of ‘eliminating all elements of exploitation social injustice within the agrarian system The Third Five Year Plait-acknowledged the gaps between the objectives and legislation and between the laws and their implementation. It noted that there had been considerable leasing out of land and in view of insecurity of the informal tenancies neither the tenants and sharecroppers nor the landowners were willing to invest in land to improve production. The Plan, therefore, recommended that (i) all tenancies be declared non reusable, (ii) resumption cases be finalized early where already allowed, (iii) voluntary surrenders be regulated, (iv) complete security of the tenants in their homestead lands be assured, (v) legislation for security of tenants and sub-tenants be properly implemented, and (vi) penalties for wrongful evictions be provided in the laws. The Plan further -stressed the Government should take steps in the matter of malafied transfers and that ceiling laws should be restructured for better effect. Following the Chief Ministers conference in 1970, a Central Land Reforms Committee, was constituted to consider all aspects of the question relating to ceiling on holding. Its recommendations were further examined by another powered nine member committee. The recommendations of the Central Land Reforms Committees were considered in Chief Minister’s Conference on Agricultural Holding held in July, 1972. By a general Consensus the policy on ceiling was formulated and the ‘National Guideline.’ were thereafter laid down which are still effective. The Fifth Year Plan formulated against this background, summed up the situation, to the effect that ‘the laws for the abolition of intermediary tenures have been implemented fairly efficiently, whilst in the fields of tenancy reform and ceiling of holding, legislation has fallen short of the desired objectives and implementation of the enacted laws has-been inadequate. ‘The Plan adopted a realistic approach in the context of the gaps between policy. These include speedy and effective implementation of measures recommended in the earlier plans within a firm time-bounded program; prompt enactment and implementation of ceiling provisions by the States as accepted in the Chief Ministers Conference to brings about uniformity' ; redesigning the program of consolidation which should be made effective after ensuring security of tenure, particularly to the share cropper ; updating records of tenancies maintenance : gearing up of the administrative machinery and making the beneficiaries familiar with the provision of law ; and associating them with implementation through local Committees. The Plan also made certain policy recommendations-relating, inter alia to personal cultivation, leasing out, distribution of surplus land, consolidation of lands of the neW allots into compact blocks and jurisdiction of laws in the matter of implementation of land reform measures. The main thrust of the Sixth Five Year Plan (BOSS) is towards effective and vigorous implementation of various elements of the nationally accepted land reform policy, more specifically the following on a time bound schedule: 1.    States which do not have legislative provisions for conferment of ownership an all tenants, except for specified exempted categories, shall introduce, appropriate legislative measures with a period of one year. 2.    The program of taking possession and distribution of ceiling surplus lands would     be completed with a period of 2 years i.e. by: 1982-83. 3.   A systematic programs would be taken up to for compilation and updating of land records, to be phased for completion within period of 5 year i.e. 1980-85. 4.    Program of consolidation of holdings would be taken up in all States, phased for    completion of 10 year, with priority to be given to command areas of irrigation      projects where it should be completed in 3 to 4 years. 5.    The program for the provision of house silos to be landless will be completed. In 2007 for the first time the Central Government heard the voice of 25,000 landless poor in the country, who walked to Delhi in ‘Janadesh Campaign’ as a voice of the deprived and marginalized in the country. In response, the National Council for Land Reforms was formed in 2008 under the Chairmanship of the Prime Minister to look into the unfinished task in land reforms. The council also includes 6 Union Ministers -Minister for Rural Development, Agriculture, Panchayati Raj, Tribal Affairs, Environment and Forests, and Social Justice and Empowerment, the Dy. Chairman, Planning Commission, 10 Chief Ministers from the state of Andhra Pradesh, Bihar, Karnataka, Kerala, Maharashtra, Orissa, Rajasthan, Tripura, U.P., and West Bengal (although the other state ministers are not being included in the committee), and 8 Land Experts and members of social organizations - Dr. Bina Agarwal, Institute of Economic growth, DU, Prof. G.K. Chadha, Member, Economic Advisory Council to the Prime Minister, Prof. V.S. Vyas, Chairperson, Institute for Development Studies, and Ekta Parishad President P.V. Rajagopal and others. Land Reforms as a redistributive programme are in relevance as they were 50 years ago. Addressing historic inequities in land ownership is central to the redistributive responsibility of our democracy. In spite of the fact that the National Council had been formed back in 2008 there has been no proposition for meeting as of yet. Some agendas undertaken for the projected first meeting of the National Council are: Both the Central and State governments should come out with their respective Land Reforms and Use Policy. GOI should launch a Centrally Sponsored Scheme to allocate at least 10 to 15 cents of land to each homeless rural poor on priority basis. Review & Operationalization of PESA or The Panchayats (Extension to the Scheduled Areas) Act with the expansion of the areas under it. Empowering the ‘Land Use Board’ with enough resources undertaking the survey of Common Property Resources and Capacity building through training. Current Status of Land Management with the Computerization of Land Records. Communication from the Centre to States upon the issues like Reforms in Land Ceiling, and Government, Bhoodan, Forest and Tribal Lands. Certain significant issues concerning the Land Reforms, like the empowerment of the Gram Sabha, Ensuring Women Rights for Land, Governance issues and policies relating to Land, Tenancy-sub tenancy issues, Role of the Panchayats in Land Management and Administration including in the North Eastern States. In the post-liberalization era formally in place since July 1991, a strong view was that the possibilities of land reforms had been exhausted and future growth would come only from private investments in agriculture and rural areas at large. This strong view was shared by many states that revised their land reform legislations. Even in the central government, it was believed that the distributive justice programs had been overtaken by a neoliberal development paradigm, notwithstanding the rhetoric of “Inclusive Growth” and “Faster, Sustainable and      More Inclusive Growth” in the Eleventh (2007-2012) and Twelfth (20122017) Five-Year Plans respectively. In practice, the neoliberal growth model  excludes  more  than it includes since  it is socially  unjust, economically inefficient, politically unstable, and environmentally unsustainable. “Faster,    Sustainable     and More Inclusive    Growth:    An Approach to the 12th Five Year Plan” (2012-2017) raises the following issues without providing rational, just, fair and humane answers to them: •    Which     land should     be used for which purpose? •    What form and quantum of compensation and rehabilitation should be provided to those whose lands are acquired? •    How should    land be acquired for     new     purposes (industrialization/ urbanization/ infrastructure development? Therefore, there is a pressing need for a national land reform policy and land use plan as well as enhancement of the access of the rural poor to land available from sources, such as ceiling surplus, Bhoodan, village commons, government estates and wasteland, industries, religious and educational institutions, forest, and homestead for equity and efficiency. Food security Food security is closely linked with land reforms, more so in India, where there is a large food-insecure population. Accordingly, the National Food Security Bill, 2011 (Bill No. 132 of 2011) has been introduced in the Parliament (Lok Sabha)    on 22 December 2011. It    has been referred to the Standing Committee    of Parliament for in-depth scrutiny and improvement. It is expected to be passed in the monsoon session of the Parliament, providing for entitlements and rights to food for vulnerable sections with a total coverage of 63.5% of total (rural and urban) population of 1.21 billion. The categorization of recipients is as follows: a)    “priority households” (below poverty line [BPL] with maximum entitlements – 46% rural and 28% urban population; b)    “general households” with reduced entitlements – 29% rural and 22% urban population; c)    expecting and lactating BPL mothers; d)    children in the age-group 3 months to 3 years; e)    primary school children of 4 to 14 years of age; and f)    the destitute, handicapped, and others similarly affected Besides, under the National Rural Employment Guarantee Act, 2005, covering 200 underdeveloped districts since 2 February 2006 and extended to the whole of rural India since 1 April 2008, the government provides guaranteed hard manual wage-employment for 100 days per rural household per annum at minimum statutory wages, to facilitate food security and survival, and minimize migration of labor. However, the above palliatives would only perpetuate dependency rather than dignified self-reliance among citizens. 4.8 LAND REFORM LEGISLATION AND IMPLEMENTATION Land Reform is a state subject under the constitution of India and the implementation of land reform laws by different State rest with the State Governments, However, the government of India has been urging upon the State Government from time to time to expedite the implementation of land reform and pointing out areas where remedial action is called, form the light of the broad national policy and guidelines. Legislative enactment’s for land reform during the last four and a half decades have embodied in a programs for (a) abolition of intermediary tenures; (b) tenancy rights (c) fixation of ceilings on land holding ; and (d) consolidation of holdings. 4.8.1    Abolition of Intermediaries Legislative measures for the abolition of intermediaries were initiated soon after the attainment of freedom. These measures were, however, assailed on two major grounds. Firstly, the high rates of compensation led to a wastage of capital resources as the bulk of compensation was either frittered away by consumption or spent on buying urban properly, etc. and only a very small percentage of it was recycled to step up agricultural production. Secondly, the exclusion of “sir, khudkhastand khas” lands from the purview of the Acts as personal property of the intermediaries under self-cultivation constituted a damaging loophole in the law and was utilized with deadly effect by the intermediaries These provisions negated in a considerable measure by beneficial effect of the legislation and helped to keep alive the social and economic base of feudal vested interests in the country. The bigger land owners got the opportunity to carve out their own “sir khudkasht” lands both in respect of location and area, and resorted to large scale eviction of tenants and sharecroppers. The mass evictions exercised a baneful effect on village generated amount the rural poor by land reforms. However, the abolition of statutory landlordism covering a variety of intermediary tenures has now, more or less been accomplished brining nearly 26 million cultivators into, direct contract with the state. This is the only plan of the land reform program that has been fully implemented. It should be pointed out that initially this was not a measure for the redistribution of land, because the farmer owners were compensated for the estimated value of their land. It did, however, make a large amount of land available for redistribution. 4.8.2    Tenancy Legislation: The specific features of tenancy legislation arise from the basic framework of land reforms policy which favoured neither the wholesale expropriation of tenant cultivators. ‘The middle course was adopted. During the first phase of the post-independence land reforms, certain amendments to the existing tenancy laws were carried out, along with legislation for abolition of intermediaries, extending the scope of production to the tenants of exintermediaries particularly in areas of statuary landlordism. The provision of a large measure of protection to tenants, however, set into motion a contradictory social process namely that of mass eviction of tenants and sharecroppers. So powerful was the eviction drive, that in the years immediately the abolition of intermediaries, the old tenancy arrangements broke down and its took years for new arrangements to take shape. Most Of the states, however, tried to enact and amend tenancy laws in the subsequent ten years and tried to plug certain glaring loopholes in the existing enactment’s to enlarge the area of protection to the tenants. The major aspects incorporated in tenancy” legislation in different States during, the last four and a half decades can be identified as (i) security of tenure ; (ii) termination of tenancy ; (iii) resumption for personal cultivation (iv) surrenders ; and (v) regulation of rent. Tenancy reforms in different States exhibited considerable variations though maintaining a broad similarity of pattern. While some progress has been made in the field of tenancy reforms many deficiencies still persist in the laws. The definition of the term tenant generally excluded the sharecroppers who form the great bulk of the tenant cultivators. Most of the leasing is done in the form of sharecropping in all the States and exclusion of sharecroppers from the scope of protection deprives the real tillers of the soil of the protection and rights provided for the tenants. Ejectment of tenants from their holding is still permissible on many grounds like non-payment of rent, failure of payment within a given period, failure to deliver share of the produce within “specified time, to execute agreement, to cultivate land property, etc. This is essentially a continuing hangover of the feudal system Total eviction from land is one of the besetting evils of the existing reforms. There is no reasons why tenancy should be terminated on some of these grounds, such as failure to give notice of harvesting. Voluntary surrenders, as provided in the laws, are hardly ever voluntary, and have become the biggest instrument in depriving the tenants of their due protection Land owners resort freely to pressures and correction of secure surrenders to get the lands vacated. The provisions included in the tenancy laws of certain State, for scrutiny by the registration with the revenue authorities did not bring about any material change in the situation. The Fourth Plan suggestion that the landowners should not be allowed to regain possession of the surrendered land, which should be allotted by government to other eligible persons, has, not been acted upon by most of the States except Kerala, Gujarat, Himachal Pradesh, Orissa, Karnataka and West Bengal. The right of resumption was sought to lie justified as it would help to convert non-working rent receiving landowners into owner cultivators who could step up agricultural production the accent being on ‘personal Cultivation”. The term ‘personal cultivation’ has been defined as to cover cultivation through hired labourer paid in cash or kind, but not as a crop share. Even personal supervision by the landowner of this family is not essential requisite of personal cultivation’s. With such a definition the right of resumption has become an instrument in the “hands of unscrupulous landowners for land grabbing, more so when the factor of personal labour does-not find any place in the definition. The provision has, in fact, indirectly created an atmosphere for the growth of informal and concealed tenancies under which the actual tenant is characterized as a farm servant or an ‘agriculture partner’. Tenancy reforms have not yet been able to regulate rents as recommended in the Plants. Fairs rents have not been defined uniformly in the Stale Laws. Besides, it is extremely difficult, to implement the provisions of fair rents in the case of sharecroppers and tenants who are not enjoying any security of tenure. For any demand or litigation for fair rents on the part of such tenants leads to their ejectment from land. One of the principal aims of tenancy reforms was to convert tenants into owners of land they cultivated. This object of conferring occupancy rights on a large body of tenants did not materialized because of high rates of compensation to the tenants. Besides, the purchase or ownership was made optional in certain States. The provision of acquiring occupancy right by tenants producing proof of continuous possession for twelve consecutive years totally negates the spirit of the principal ‘land to the tiller’; because under the peculiar character of landlord-tenanţ nexus in India. It is virtually impossible for an ordinary tenant to prove it. In fact, the landlord takes good care that the tenants unable to do so by manipulating land records withholding rent receipts and rotating the tenants yearly from plot to plot. The burden of proof being on the tenants the laws thus become virtually ineffective. It should have been provided that once a tenant puts forward his claim to occupancy right or any rights under a tenancy law the burden of proof to the country should be on the landlord in order to protect the interest of tenants. If the small peasants and the sharecroppers have not been able to get hold of very much land they also not been served any better by the legislation relating to security, to tenure and the fixing of reasonable rents. In addition, the practice of granting oral leases of switching cultivators from one plot to another, device to withhold from him permanent occupations rights, are widespread. “The locus Classicus of the non-implementation of tenancy legislation is the report prepared by Ladejeinsky, who documented the lack of security of tenure and continued high levels of rental.” 4.8.3    Ceiling Legislation: The imposition of ceiling on agricultural holdings is pre-eminently re-distributing measure. The most compelling case of land ceiling arises from the absolute and permanent shortage of land in relation to the population dependent on it, the limited prospect of transfer of population to nonagricultural and the needs to set up production along with increase in ‘employment’. But this necessity was not effectively transformed into spearheaded action. The First Plan made a passing reference, the Second Plan recorded a little advance by recommending ceiling legislation and the Third Plan only reiterated the earlier objective. . Thus, for nearly fifteen years after attainment of freedom, ceilings on big holdings remained a nebulous item in the scheme of agrarian reforms. It remained until about 1960 a vague political-economic concept lurking in the background. It was justified on consideration of social justice but not on grounds of increasing production and developing agriculture. Ceiling laws were enacted and enforced in two distinct phases, the earlier phase covering the period up to 1972, and the later from 1,972 after the adoption of ‘National Guidelines’. As ceiling legislation is a state subject, each State enacted its own ceiling law which obviously gave room for variations. There were two units of application, namely, the individual landholder and the family. Again the definition of the term ‘family’ as well as also the classes of land which were exampled from the operation of Ceilings laws also varied widely in the States. Andhra Pradesh had a range from 27 to 324 acres, Rajasthan a range from 22 to 336 acres. Gujarat from 19 to 122 acres, Mysore from 26 to 216 acres, Punjab and Haryana from 27 to 80 acres, Maharastra from .20 to 80 acres, and so on. Obviously even its implementation was perfect, not much land was going to emerge for distribution. These legislative measures are also full of loopholes and the big landowners took full advantage of them to circumvent the laws. They resorted to partition of their holdings and fictitiously transferred them to other individuals through what is called ‘benami’ transfer on a very large scale in anticipation of ceiling laws with the result that very little surplus land became available for redistribution. Besides implementation was extremely unsatisfactory. The absence of any penal measure to restrict or control such breaches of law accelerated such evasion. Of these major loopholes that existed in die ceiling laws of the first phase the high ceiling limits, scope for manipulations and clandestine transfers and exemption of various types of land from the ceiling laws were serious. These loop holes provides an abject lesson for today. It is now generally recognized that if redistribution of land was the main objective of the ceiling laws, this was nor realized at all. The ineffectiveness of the ceiling laws of the earlier phase, the exigencies of agricultural production, agrarian unrest in the country, all these factors called for immediate review. The National guidelines formulated on basis, of this review provided the basis of ceiling legislation in the post-1972 phase. The chief Minister’s conference (1972) approved the following ceilings on land holding : (i)    The best category of land in a Stage with assured irrigation and capable of yielding at least two crops a year should have ceiling with fertility of the soil and other conditions. Allowance ‘may be made’ for land irrigated from private sources and capable of growing at least two crops in a year equating 1.25 acres of such land with 1 acres of land irrigated from public sources and capable of growing at least two crops in the year. The ceiling for such land irrigated from private sources shall not, however, exceed. 19 acres. The term irrigated from private sources, shall mean irrigation from tubewell or lift irrigation from a perennial water sources operated by diesel and/or electric power. (ii)    In case of land having assured irrigation for only one crop in the year, the ceiling shall not exceed 27 acres. (iii)    In case of owners with holding consisting different types of land, holdings after converting the better categories of land into the lowest categories should not exceed 54 acres. (iv)  Regarding the Unit of Application, the following recommendations were made: (a)   The Unit of application shall be a family of five members, the terms family’ being defined so as to include husband, wife and their minor children. Where the number in the family exceeds five, additional land maybe allowed for each member in excess of five in such a manner that the total area admissible to the family does not exceed twice the ceiling that will apply to the aggregate area held by all the members of the family. (b)    Where both husband and wife hold lands in their own names the two will have rights in the properties within the ceiling in proportion to the value of the land held by each before the application of ceiling. (c)   Each major child will be treated as separate unit for the purpose of application of ceiling. 4.8.3.1    Exemptions have been permitted in the following cases: (i)    The exemptions in favour of plantations of tea, coffee, rubber, cardamoms and cocoa should continue; (ii)    Lands held by industrial or commercial undertaking for nonagricultural purpose should be exempted from the ceilign law; and (iii) Sugarcane factories may be permitted to retain an area not exceeding 100 acres. Professor A.K. Khusro has observed that “in terms of acreage the present ceiling appear to be stiffer than the past, But meanwhile, as agricultural yield has risen in the last ¡decade in more than half of India, thanks to higher technology, better seeds more input use and some institutional change, it does not appear that the present ceiling are any way stiffer than the ceiling of the 1950s in terms of the real income received by the landholders.” The ceiling legislation in the post-1972 phase has been improved, rationalized and put on a more or less uniform basis throughout the country. This, represents a national consensus on the question. The ceiling limits have been appreciably reduced, the long list of the exempted categories of land has been considerably cut and measures to control clandestine transfers have been provided for. There, however, still remain some variations in the amending legislation from State to State relating, to the level of ceiling on lands with assured irrigation, other limits of ceiling, rates of compensation and the date of retrospective effect. The main problem is the of effective implementation of the amending legislation, It must be remembered that the policy of land to the tiller was not directed towards landless agricultural labourers, the bottom strata of society. Raj Krishna, Dandekar and Rath, and Minhas have all argued that the problem of the landless cannot be solved through the redistribution of land, because there simply is not enough land to go round. Pressure on land is terribly acute. Thus’ as a broad generalization it is true that enough land can be made available though land redistribution, even of highly radical magnitudes with the existing land/man ratio in India. But professor A.M. Khusro is of the opinion that, land distribution through land reclamation programmes with the use of new reclamation technology remains a clear possibility for one or two decades to come. This also suggests mat land ceilings are dated measures of policy. However, much depends, of course, on what lands are transferred and how efficiently they are managed subsequently. Detection of ceiling surplus land is more difficult than distribution of such land. There are various means, deriving their effectiveness from legal and social right, by owners can conceal their surplus land-Agricultural labourers and share-croppers are perhaps the most reliable sources of information regarding the actual extent of ownership of the local landlords. So long as they are tied to their masters with a net work of strings non-economic, as well as economic they cannot be expected to furnish true information. Hence, arise the necessity to impart to them a sense of independency. Against the nearly 4.0815 million acres declared surplus, only about 2.737 million acres have been taken passion of land of this only about 1.973 million acres have been distributed at 13.8 lakh persons in the country (Agricultural Minister^ reply int. he Lok Sabha on October 4, 1982), Of the 1 .4 million acres which have not yet been taken into possession 1.1 million are said to be under litigation. The highest numbers of cases, 500,000 are in Andhra Pradesh. The tardy implementation of land reform, which sticks out like a sore in them by in the so-called new 20 point programme of the Prime Minister, has prompted the food and Agriculture Minister, to impress on the States to get on with the job. 4.8.4 Consolidation of Holdings: In, India most of the agricultural holdings are not only small but they are also widely scattered. Hence emphasis was laid on consolidation of holdings in the Five Year Plans. A Major weakness of the programme was that consolidation was not done without taking effective steps to ensure security of tenure to tenants, particularly sharecroppers. With the result, consolidation of holdings has led to a large scale ejectment of insecure tenants. For one thing, when holdings were fragmented even a resident landowner found it difficult to cultivate personally all the plots of land, constituting his fragmented holdings to sharecroppers. After holdings were consolidated, the landowner found it both feasible and profitable to cultivate personally the entire area and, therefore, he spared no efforts in getting rid of the sharecroppers. For another, the relationship of sharecropping tenancy subsisted in respect of a specified plot of land easily identified in the field. ‘Once consolidation was effected, the identity of the particular plot that the sharecropper has been cultivating was lost and he could be automatically ouster from the land. Thus consolidation of holdings has often turned out to be the ‘coup’ to ‘grace’ for the sharecroppers who lead a precarious existence. This Sixth Plan (1980-85) has stated that most of the States in the” country have enacted legislation to undertake consolidation of holdings. It is estimated by now nearly 45 million hectares of land, i.e., about l/4th of the consolidated land has been consolidated all over the country. However the implementation” has been extremely patchy and sporadic, only in Punjab, Haryana and West Utter Pradesh, the work is complete. Even a beginning has not been made in the southern States and Rajasthan. In the-Eastern states, some work has begun only in Orissa and Bihar. In the post-liberalization era formally in place since July 1991 , a strong view was that the possibilities of land reforms had been exhausted and future growth would come only from private investments in agriculture and rural areas at large. This strong view was shared by many states that revised their land reform legislations. Even in the central government, it was believed that the distributive justice programs had been overtaken by a neoliberal development paradigm, notwithstanding the rhetoric of “Inclusive Growth” and “Faster, Sustainable and More Inclusive Growth”    in the Eleventh (2007-2012) and Twelfth (2012-2017) Five- Year Plans respectively. In practice, the neoliberal growth model excludes more than it includes since it is socially unjust, economically inefficient, politically unstable, and environmentally unsustainable. “Faster, Sustainable      and More Inclusive Growth: An Approach to the 12th Five Yea Over time, however, land reforms have remained unfinished. Since 1991 , as the neoliberal development paradigm was put in place formally, land reform issues have become compounded by several realities, as discussed below. The enhanced demand of agricultural land for non-agricultural purposes, such as infrastructure development, industrialization, and urbanization, as well as tribal lands in hills and forests for mining, mega projects, and industries: As of 201 1 , there are about 17 existing land acquisition legislations under which the government, exercising its authority based on the principle of “eminent domain”, acquires land for a range of purposes from defense and      railways to   Special Economic     Zones (SEZs),    infrastructure, and industries without            adequate compensation and/or rehabilitation and resettlement. However, the most commonly used legislation is the Land Acquisition Act, 1894, which has been bitterly and repeatedly criticized by the Supreme    Court in    its recent      judgments, advising the government to repeal and replace it with a new just and humane legislation. The Act has allowed forcible land acquisition or land grabbing, resulting in numerous protests by the adversely affected people and civil society activists. Quite a few unlawful and unjust land acquisitions have been quashed by the High Courts and them Supreme Court. As a result, the Land Acquisition Rehabilitation and Resettlement Bill, 201 1 (Bill No. 77 of 2011) was introduced in the Parliament (Lok Sabha)     on 7    September 201 1 and has beenreferred to the Standing Committee of Parliament (SCP)     for scrutiny and improvement.    (The SCP has returned the Bill on 16 May 2012 with its recommendations for drastic amendments necessitating virtual redrafting.) It may be passed in the monsoon session of Parliament, repealing and replacing the 1894 Act. Its positive provisions include adequate compensation, rehabilitation and resettlement, prior consultation, social impact assessment, and others. However, its basic purpose is to facilitate land acquisition for industrialization, development of essential infrastructural facilities and urbanization, without any vision of rational land use and any consideration for rural people, their livelihood and lives, even though the bill has been drafted and introduced by the Ministry of Rural Development which is expected to promote the wellbeing of rural people and areas. Displacement of people in the hills and forests caused by development projects: The Scheduled Tribes     (STs)     and other traditional forest dwellers have customary usufructuary land rights. But because technically and legally, they do not own such land, it is acquired by the government without consulting, compensating and rehabilitating them. As a result, 60 million people have been displaced following development projects over the last six decades, and only a third of them are estimated to have been resettled. About 40% of         these displaced people     are STs and 20% Dalits (SCs).          Little wonder    that a     large part of the tribal and forest areas is affected by Maoist/ Naxal violence. 2 Recently, after sustained lobbying, advocacy and Castes by   CSOs Tribes Forest Rights) democratic pressure by the STs,       Scheduled (SCs)     and other     sympathetic groups assisted and civil society     at    large, the Scheduled and OtherTraditional Forest Dwellers (Recognition of Act, 2006 and Rules 2007, was notified and enforced beginning 1 January 2008. It has generated some hope for them. Legislation, the Provisions of Panchayats (Extension to Scheduled Areas) Act (PESA), 1996, provides for     mandatory     prior consultation with the tribal Gram Sabha (village    assembly) in the Fifth Schedule tribal areas to acquire their land. But so far, this has been observed only in its breach. Decline of about 2 million ha in the net area sown over the past decade Such decline    is    likely to increase in    the coming years, jeopardizing lives, livelihood, and food security of the rural poor and rural people, notwithstanding the assertion in the Approach to the Twelfth Plan that it can be overcome by increasing agricultural productivity and avoiding acquisition of multi-crop irrigated  land.  Actually, there has already been an unprecedented agricultural slowdown during the post-liberalization era (1991-2006), primarily due to highly reduced public investments and utter neglect. Measures to reverse it have been initiated only in the Eleventh Plan (2007-2012) to ensure food security. Highly uneven land distribution as reflected in Agricultural Census (2005-2006) data and other sources underlines the need to optimize the redistribution of land to the landless tillers. With regard to women’s land rights, on the whole, there is gross gender inequity. The Hindu Succession (Amendment) Act, 2005 provides that in a joint Hindu family, the daughter shall, by birth, become a co-parcener in her own right in the same manner as the son and should have the same rights in the co-parcenery property as she would have had if she had been a son, effective 20 December 2004. Thus, Hindu women have equal rights to land, but social complications muddle practice. Hindus constitute about 80.5% of the population of India. Muslims constitute about 13.4% of the population; but they are governed by their personal law, which is unfair to women, the common norm being 62.5% to sons and 37.5% to daughters irrespective of their number. Other religious groups, numerically much smaller, are governed by their traditional laws and practices. Only a few communities in India in states like Kerala and Meghalaya are matriarchal; the rest of Indian society is patriarchal. Besides, in some cases, civil society activists have tried to get fresh land allotments in favor of women and/or joint allotments in favor of wife and husband. 4.9    REASONS FOR POOR PERFORMANCE The Task Force on Agrarian Relations set up by the Planning Commission (1973) in its report has stated that the laws for the abolition of intermediary tenures have been implemented fairly efficiently. While in the field of tenancy reforms and ceiling on holdings, legislation has fallen short of proclaimed policy and implementation of the enacted laws has been tardy and inefficient. With the abolition of intermediary interest the ownership of land became more broad based and the erstwhile superior tenants acquired a higher social status. It should not, however be overlooked that as a result of the tenancy, laws enacted in the decade prior Independence the superior tenants had already been enjoying security of tenets fixity of rent. It is a most point whether the abolition of intermediary interest conferred any new economic benefits on the tenants. The programmes which could have led to a radical change in the agrarian structure and the elimination of some of the elements of exploitation in the agrarian system and ushered in a measures of distributive justice were those of reform, ceiling on agricultural holdings and distribution of land to the landless and small holders. These programmes cannot be said to have succeeded. Highly exploitative tenancy in the form of crop-sharing still prevails in large parts of the country. Such tenancy arrangement have not only resulted in the perpetuation of social and economic injustice but they also become insurmountable hurdles in the path of the spread of modem technology and improved agricultural practices. Thus the overall assessment has to be that programme of land reform adopted since Independence has failed to bring about the required changes in the agrarian structure. - The major reason for the poor performance of the programme of land reforms according to the Task Force (1972), are as follows: 1.    Lack of political Will: Enactment of progressive measures of land reform and their efficient implementation call for hard political decisions and effective political support, direction and control. Professor Wolf Ladej insky after touring the greater part of South East Asia, summed up the approach to land reform “as nine-tenth of political will’ and added, “where there is a will, there is a way and not just legislation. In India, practically, all the state governments had enacted laws in the early fifties but lacking the “political will’ none of them was able to implement the programme in letter and spirit in spite of the it fact that was one of the major election promises, it was thus definitely a lack of “political will” of the state governments, which allowed loopholes in the ceiling legislation. No tangible progress could be expected in the field of land reform in the absence of requisite political will. Its report also has pointed out that in no sphere of public activity since independence has there been as’ much gap between precept and practice, between policy pronouncement and actual execution as in the case of the land reforms. To quote the Task Force: ‘ ’With resolute and unambiguous political will, all the other shortcomings and difficulties could have been overcome; in the absence of such will even minor obstacles became formidable roadblocks in the path of India’s land reforms. Considering the character of political power structure operating in the country, it was only natural that the required political will was not forthcoming.” 2.    Absence of Pressure from Below: The beneficiaries of land reform, particularly share croppers and agricultural labourers, are weighted down by crippling social and economic disabilities. Except in a few scattered and localized pockets, practically all, over the country the poor peasants and agricultural workers are passive, unorganized and inarticulate. ’The basic difficulty in our situation arises from the fact that beneficiaries of land reform do not constitute a homogeneous social or economic group. The mixed economic status of the different groups and their conflicting interest have rendered organized collective, action very difficult, and finally, the multicast composition of the peasantry effectively rules out the possibility of the development of a common outlook and collective will. In the circumstances it is small wonder that there has been no consistent pressure from below, a pre-requisite for the effective implementation of land reform laws. 3.    Administrative Organization-Inadequate policy Instrument: Land reform, does not, therefore, get the undivided attention it need. Even if it had not been overburdened with multiple duties, it is very doubtful if the administrative organization would have proved to be equal to the task of efficiently implementing the land reform laws. The attitude of the bureaucracy towards the implementation of land reform is generally lukewarm, and often apathetic. No state has taken necessary steps to forge a suitable administrative organization and keep it in proper trim by systematic in service training and periodic courses. Nor has any conscious efforts been made to post and dedicated men with faith in land reform to key position in the administrative set up. As a matter of fact, there have been cases where administrators who tried to implement land reform laws honestly were hastily transferred elsewhere. In the result, practically in every State, the administrative organization has proved to be an inadequate instrument for the speed and efficient implementation of land reforms. 4.    Legal Hurdles: The land reform laws were defective in many ways; some loopholes were deliberately built in, while others were the result on poor drafting, the formidable combination of tenacious 'landowners and ingenerous lawyer found a godsend in a legal system which put great store by procedural formalities. All possible avenues of appeal and revision would be exhausted before a single step could be taken to implement a law. Practically in every state protracted litigation has delayed and often frustrated, the implementation of land reform laws. While on the one hand the courts have been, and continue to be the targets of attack by politicians for allegedly standing in the ways of implementing land reform legislation, available data shows that the legislations are usually challenged on such facts as the number of members of the family, correct classification of the land the actual ownership of certain parcels of the holding, and not on their constitutionally validity. The Law Ministry has also given the opinion that merely placing a land legislation in the Ninth Schedule would not debar court from reviewing a case arising from out of points of facts. 5.    Absence of Correct' up-dated Land Records: An important factor that has militated, against the effective implementation of land reform in the absence of correct up-to-date record of right. A programme that aims at the redistribution of income and wealth in the rural areas cannot succeed unless the beneficiaries can produce evidence of their rights. No amount of legislation will help the tenant in the court unless he proves that he is in fact a tenant. This he can do not only if there is a reliable and up-dated record of tenancies with presumptive evidentiary value. The position regarding record to tenancies particularly in the matter of entries relating to rights of sharecroppers is not satisfactory anywhere in the country, and no record, exists in some areas. The problem is largely administrative, the absence of up-to- date land record is a serious obstacle in the implementation of land reform 6.    Some Weak Spots in the Programme: The programmes of land reform have been viewed so far, in isolation from the mainstream of economic development. Lack of financial support has plagued Indian land reform right from the beginning. No separate allocation of funds was made in the Five Years Plans for financing land reform The programme of land reform did not get the necessary budget support in any of the States. Against this back-ground, it is hardly, surprising that funds were not available for extending supporting service to beneficiaries of land reform An agrarian reform programme can succeed only if it is accompanied by adequate arrangement for the supply of inputs, particularly credit on easy terms for development and cultivation of land. 7.    Deficiencies in Reporting System and Evaluation: Even after four decades of land reform it is difficult to get reliable and up-to-date data on various aspects of land reform. The reporting system is weak and irregular and the deficiency is rooted in the weakness of the Revenue administration and the absence of up dated land records. There has been no systematic review of progress at periodic intervals. Thus, the repeated change that it is total absence of political will rather than any other single cause that is the major reason for the poor implementation of land laws is amply borne out by facts. Parmit Choudhary (1978) has commented that there are not many areas of economic policy in India where one can categorically point out the direction in which events have been moving. Unfortunately, land-reform, a vital plank' in rural deployment policy, is one of these. It is an unrelieved account of false promises, of continued oppression and misery”. Dr. M.S. Swaminathah while delivering the tenth J.N. Tata lecture at the Indian Institution of Science, Bangalore, said that at a time when the country had entered the third and more challenging phase of agricultural production, one major issue facing it was the whole area of land reform and agrarian structure and reform had so far been mainly looked at from aspects of land ownership, land ceiling and security of tenure. For enabling small and marginal farmers to produce more; land reform would have to be given ownership-cum-production interpretation covering steps which facilitate the more efficient use of land. Exercise 4.1 Q1. What is the pattern of Land-Holding in India? Q2. What are the important methods of tenancy reforms in India? 4.10    SUMMARY To basic objectives of land reforms should be to break-up the traditional strange hold of the big landed interests, abolish on land and landlord tenant nexus, strengthen and overall economic position, of the masses of peasants and create sanctions for the development of a healthy and dynamic agrarian society. The existing scheme of land reform shall have to be reoriented to this end in the following direction. (i) Quick recording of the names of the sharecroppers and thereby securing to them      the legal rights they are entitled to. (ii)    Distribution of already available ceiling, surplus vested lands among the landless     and poor peasants. (iii)    To detect and vest more ceiling surplus through quasi-judicial investigative    machinery with the help of rural worker’s organizations and Panchayati Raj institutions. (iv)    Designing various programmes for developing rural infrastructure which would primarily benefit the assignees of vested land marginal farmers as well as give them sustenance during periods of distress, thus preventing, transfer of land to affluent farmers. (v)    Assigning permanent title for homestead purpose to all the landless agricultural      workers (including sharecroppers), artisan and fisherman occupying lauds of other as permissive possessors. Land reform cannot be properly enforced without popular cooperation and support at all levels. Population supervisory committees should therefore, be constituted at all levels consisting of people’s representatives including the beneficiaries, officials and experts to exercise vigilance on implementation. These committees should be vested with certain statute powers like inspection of records and sites, collection of evidence, etc. and their recommendations should receive due weightage. Moreover, a policy of public investment in ceiling surplus lands prior to their former assignment to the landless is obviously necessary. We are aware that such a change is more easily recommended than brought about. It cannot but be a long haul. Land reform is again in the news  and its implementation is declared as one  of the essential ingredients of the Prime Minister’s 20-point programme. Efforts are being made by Centre as well as the state governments to undertake the “unfinished task” started in the early fifties. The task is indeed difficult. 4.11    GLOSSARY •    Land Reforms:  Land reform is concerned with changing the institutional structure governing man’s relationship with land. In the main, land reform is seen as a means of bringing about structural changes in the agricultural sector, thereby altering the size, distribution of holdings or the distribution of income. •    Land Ceiling: refers to the legal limit on the amount of land an individual or family can own, with the  purpose of preventing excessive land concentration and promoting equitable distribution of land resources. •    Consolidation of Holdings: consolidation of holdings refers to amalgamation and redistribution of fragmented land to bring together all plots of land of a cultivator in one compact block. On an account of growing pressure of population on land and limited opportunities for work in the non-agricultural-sector, there is increasing trend towards sub-division and fragmentation of land-holdings in the country. •    Agrarian Reforms: Agrarian reform is a much more comprehensive concept than land reform, since it involves modification of a wide range of conditions that affect the agricultural sector. These modifications might include changing price policies so as turn the terms of trade in favour of the agricultural sector increasing, allocations to agricultural sector in order to expand research, extension, training and storage facilities making physical supplies such as fertilizers, available and increasing credit for their purchase; or providing infrastructure for facilitate agricultural production. 4.12    ANSWERS TO SELF-CHECK EXERCISES Exercise 4.1 Answer 1 . Refer to section 4.4. Answer 2 Refer to section 4.6. 4.13    SUGGESTED READINGS 1.    R.N. Soni: Issues in Agricultural Economics, Shoban Lal Nagin Chand & Co. Jallandhar. 2.    Mishras & Puri (2006): “Indian Economy”, Himalayan Publishing House New Delhi. 3.    G.R Saini (1971): “Holding Size, Productivity And Some Related Aspects Of Indian Agricultural “EPW”, June 26. 4.    Graham Dyer (1998): “Farm Size and Productivity; A new Look at the old debate” EPW, June 27. 5.    Adiqa Kausar Kiani: “Farm Size and Productivity in Pakistan” European Journal of Social Sciences Vol.7 No-2 (2008). 4.14    TERMINAL QUESTIONS Q1 .  What are  reasons of failure of Land reforms  in India? Give suggestions for successful implementation of land reforms in India? Q2. Explain the need and methods of consolidation of Land holding in Indian agriculture sector? UNIT – 05 AGRICULTURAL PRODUCTION FUNCTIONS STRUCTURE 5.0 Objectives 5.1    Introduction 5.2    Production Function 5.3    The Cobb -Douglass Production Function 5.3.1    Two variable factors: one product 5.3.2    Returns to Scale 5.3.3    Use of Cobb-Douglass Type Function 5.4    Spillman Function 5.5    Quadratic Production Function 5.5.1    Two variables Quadratic Function 5.5.2    Main features of iso-quants of quadratic function 5.5.3    Iso-quants and Iso-clines for quadratic function 5.6    Summary 5.7    Glossary 5.8    Answers to Self-Check Exercises 5.9    Suggested Reading 5.10    Terminal Questions 5.0 Objectives After going through this lesson you will be able to: •    Explain the Cobb -Douglass Production Function •    Elucidate Two variable factors: one product •    Explain the Quadratic Production Function 5.1    INTRODUCTION The level of output achieved in a given period of time is dependent upon the quantities of inputs; there is a technical relationship between inputs and outputs. Though there is some uncertainty about the precise, level of output which will be obtained because of the unpredictability of weather and pest and diseases. However, the uncertainty is not as great as to prevent scientists from estimating the production relationships or to prevent farmers from using their knowledge of those relationships in reaching management decisions. 5.2    PRODUCTION FUNCTION The input-output relationships are determined by the techniques of production. Indeed they define the technology available to the farmer. They are altered by technological change. Together with the level of fixed inputs these relationships determine what is feasible for the farmer to produce. They set limits on the alternatives open to him. Every farmer therefore needs to know something of the way in which his resource inputs influence his output. Historically, refinements in concepts relating to production function grew out of economics probably because of the following reasons, (i)  The  nature of production  functions  is  important in determining the extent to which agricultural production can be increased from given resource stock, (ii) The magnitude of production coefficients serve as the basic for determining optimum pattern of international or inter-regional trade, (iii) The production function provides half or one of two general categories of the data needed in specifying the use of resources, (iv) The algebraic nature of supply function rests, in large part, upon the nature of production function. With the passage of time, a greater knowledge level of farmers, and an increased commercialization of agriculture, there is increased need for experimental designs and research in biological fields which lend themselves to estimation of production function. Under these highly commercial operations, management is not satisfied to stop with use of quantity of fertilizer which is profitable. They are concerned with the most profitable quantity and mix of ingredients. Various algebraic equation forms can be used in deriving production function. No single form can be used to characterize agricultural production under all environmental conditions. The algebraic form of the function and the ‘magnitude of its coefficients will change with soil, climate, type and variety of crop or livestock, state of mechanization, magnitude of other inputs in “fixed quantity’ for the firm etc. selection of any specific type of equation to express production phenomena automatically imposes certain Restraints or assumptions in respect to the relationships involved and the optimum resource quantities which will be specified. An infinite number of functional forms are possible in productivity studies but those considered in following sections either (a) have logical implications which cause them to “standout” from the others or (b) have been widely used production function studies. Numerous research studies in agriculture revolve around production functions with a single resource or treatment applied at different levels. Equations with a single variable defining the input can be used to evaluate certain properties of production functions and their marginal products. These same properties generally apply when there are n variables. Obviously, however, output is never greater than zero when only one production factor is used. Appropriately, the production function should be represented as Y = f (X1, X2 ............... Xn) Where Y is the output and X1 are inputs. It is of course, possible to hold certain categories of inputs at fixed level. While others are variable however, certain resources are exogenous and are not subject to control by the decision maker. Expressing this random disturbance as €, the 'production function, without control of factors, is y = (Xi, X2, X3............xn) + A € A vertical bar can be used to indicate that only one factor, X1 is variable while other are held constant at some predetermined Y = ɸ(x1/x2x3 .................. xn) In practical life, unless we have knowledge about the nature of production function itself, we cannot know the point which will indicate the, optimum utilization of resources. The equilibrium condition is the equality between marginal value productivity of a factor and its price, but the question is how to determine marginal productivities of various factors or movements in their direction with the change in various inputs. This requires fitting of a production function. Before a production function is being fitted, it is necessary to know the nature and form of production function itself. This takes us to the description of some important production functions that have been or can be used for analyzing problems of resource use in agriculture. 5.3    THE COBB –DOUGLASS PRODUCTION FUNCTION This production function is known, after the name of its author’s cob, Charles W. and Dougalas, Paul. H. They fitted the equation of the type P1 = b Lk C1-k                                                5.1 to data for American manufacturing industries Over the period 18991922. This was the first formal empirical production function fitted to time series data. In this, equation P1 represented the predicted index of manufacturing output, L was the index of employment in manufacturing industries, and C was the index of fixed capital in industry. Actually, the equation which has came to be known as the cobb-Douglas function traces to Wick sell. He stated, in the footnote, the function as P = aαbβcȣ 5.2 where a β λ was equal to 1 (as in Cobb-Douglas function where K + 1 - K =1) Douglas and associates later on relaxed the restraint that the sum of the elasticity’s in the production function should sum to unity and employed at the suggestion of Durand the function’ P = bLk CJ 5.3 where k and j could take any value. The resulting power function, which is linear in logs, has commonly come to be known as the cobbDouglas function. It has been applied in numerous production function studies for technical units and firms of agriculture. One of the main contributions of Cobb and Douglas, and also of Durand, to production function studies may have been development of the particular algebraic form of equation. It has been used widely because of its convenience in interpreting elasticity’s of production, because estimation of parameters involve fewer degrees of freedom than other algebraic forms which allow increasing or decreasing returns to scale, and because its use involve fewer degrees of freedom Unlike many other production functions, this production function assumes that at least some quantity of each input must be used if output is to nonzero. The Cobb-Douglas or power function, in the form generally used, is y = axb                                                 5.4 where x is the variable resource measured, y is output, a is a constant and b  defines the transformation ratio when x  is  at  different magnitudes. The exponent or b coefficient is the elasticity of production and can be used directly. (The equation is estimated in logarithmic form.) This function allows either constant, increasing, or decreasing marginal productivity. It does not allow an input output curve embracing all three. When all other inputs are held in fixed magnitude, the marginal product is expected to decline. The marginal product equation is dy = b a x b-1 = b a x b dx                x                                5.5 Ep = x . dy Y dx = x . y = b                                                              [ y = axb ] y x 5.6 Ep = b indicating that if b = 1 , the marginal product-will-be constant, where b is less than 1, the magnitude of marginal product will decline as x increases since Xb < x, where b >1 , the magnitude of marginal product will increase as x increases, depending on the magnitude of b This function assumes a constant elasticity of production, Ep, over the entire input-output curve, or that dy1 x1  = dy2 x2  =    dynxn dx1 y1     dx2 y2      dxnyn                   5.7 Given the mathematical properties of the equation, this function cannot be used satisfactory for data where there are ranges of both increasing and decreasing marginal productivity. Neither can the function be used satisfactorily for data which might have both positive and negative marginal products. Also since the rate of decline in marginal product decreases with input magnitude, the power function provides a curve of the, nature indicated in figure. 5.1 . ‘The curve “flattens out” as input increases and a maximum product is not defined. Unless an economic optimum is defined for small magnitude of input, the power function may overestimate the input of x which equates marginal revenue and marginal cost. Magnitude of Y Graphic Illustration of function computed from equation log y = log a + b log x. 5.3.1 Two variable factors: one product We now consider the effect of varying inputs of two factors of production. The total physical product in quintals for combinations of two factors, labour and land, are given in Table. 5.1 . These figures therefore represent the production function relating output to inputs of labour and land. Each row in this table represents the response curve for labour at a given level of use of the other resource land. Each column in the Table 5.1 represents the response curve for varying inputs of land with a given level of labour use. The marginal product per unit of labour and land is the difference between two consecutive values in the same raw and same column respectively. Table 5.1 Amount of output in quintals (y) to Varying combinations of labour (X1) and land (X2) | OJ X -♦—' °- « o .Q 05 _J | Labour Input (X1 Units) | |---|---| | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | | 1 | 7 | 20 | 31 | 37 | 40 | 39 | 35 | | 2 | 18 | 33 | 45 | 52 | 37 | 57 | 54 | | 3 | 27 | 42 | 55 | 62 | 65 | 67 | 65 | | 4 | 33 | 48 | 61 | 68 | 71 | 73 | 72 | | 5 | 37 | 53 | 66 | 73 | 76 | 78 | 77 | | 6 | 39 | 58 | 69 | 76 | 79 | 81 | 80 | | 7 | 40 | 60 | 70 | 77 | 80 | 82 | 81 | If we assume that inputs of land and labour can be varied continuously, smooth curves can be fitted to the data given in each row and column. Here the diagram takes a three dimensional form where quantities of inputs are measured along with the horizontal axis and output is measured vertically. Response surface for two inputs with interlaced single variable response curves. Individual single variable response curve for labour are represented by vertical slices parallel to the labour (x1) axis Likewise response curve for land are parallel to the X2 axis. The interaction means that if inputs of one factor are increased in relation to inputs of another factor, although the marginal product per unit of the first factor eventually declines, the marginal product of second factor rises. Also the marginal product per unit of a variable factor depends upon the level at which limiting factors are fixed. All points on the production surface will represent some combinations of X1 and X2 and we must note that if we have two variables, the number of such combinations and therefore, of the corresponding points on production surface will be infinite. Like any other two input production functions, the cobb-Douglas production function, y = a X2bI X2b2 gives rise to set of iso-quants. Locus of various combinations of two inputs X1 and X2 which yield the same amount of total product is known as iso-quant. If coefficients of X1 and X2 i.e. b1 and b2 have positive values, the iso-quants for this function will be convex to the origin depicting declining rate of marginal technical substitution between X1 and X2. Iso-quants will be asymptotic to input axis. y = axibi x2bi                                                                 5.8 Suppose y is y0 i.e., a particular amount of output produced then b1 X1 X1 yo b2 a X2 b1 — yo a X2b2 5.9 given point, will represents Now slope of this iso-quant at a the marginal rate of substitution of X2 for X1 In this case MRS of X2 for X1 is d X1 d X2 d X1 d X2 d X1 d X2 1 b1 b2 b1 yo b2 a X2 = - b2 X1 b1 X2 1/ b .1 b2 = yo 1 b1X2b2+1 yo a X2b2 1/ b .1/x aX2b2 2 5.10 The above equation of MRS for an iso-quant based upon C-D production function clearly shows that as X2 increases and in progressively substituted for X 1 MRS will go on falling, which shows about convexity of the isoquant.                                                • If one variable in the above equation of iso-quant (i) say X2 is zero, value of X2 % will be infinity showing that the iso-quant will meet the axis X1 at infinity. MRS of an iso-quant is a linear function of the ratio in which “X1 and X2 are combined to produce the output represented by the given iso-quant. Iso-costs for a C-D function will be straight lines, all passing through the origin since the iso-clines are straight lines passing through the origin, and these will coincide with the scale lines. Minimum cost point is that where the slope of iso-quant is the same 'as that of iso-cost line Since iso-cline is a straight line passing through the origin, the ratio in which inputs are to be mixed for minimizing total costs is the same for all levels of output. 5.3.2    Returns to Scale Historically, in Cobb-Douglas analysis of farm firms, the sum of the estimated input coefficients has been taken as an indication of the returns to scale. If ∑b1 <1, it implies decreasing returns to scale and ‘∑b1 >1 increasing returns to scale ŷ = ax1b1X2b2.....................................Xnbn                 5.11 The procedure usually adopted is to perform a least to ascertain if ∑b1 is significantly different from unity at the desired probability level. If the researcher believes that constant returns to scale must prevail if all input factors are included, then it is logical to test the divergence between ∑b1 and unity as an indication of the importance of omitted input factors. 5.3.3    Use of Cobb-Douglas Type Function Cobb-Douglas functions have been the most popular in farm firm analyses. This algebraic model provides a compromise between (a) adequate fit of the data, (b) computational feasibility, and (c) is a relatively “efficient user” of degrees of freedom. Such efficiency is important where research resources are limited and collection of farm firm data is expensive. However, it probably has greatest use in diagnostic analyses, reflecting marginal resource productivities at mean levels of inputs. Because of the elasticity restraint, estimates departing above the mean may well overestimate productivities. The C-D function, because of the need of aggregation procedure tells little about returns from specific investment. 5.4    SPILLMAN FUNCTION This exponential type function was suggested by spill man in the following form of equation y = M-ARX                                           5.12 Where y again measures total output and x measures total input. M is the maximum total output which can be attained by use of the variable resource. A is the total increase in output which can be attained by increasing X, M-A is the level of output defined by fixed resources and a zero input of the variable resource, R is a constant defining the ratio of successive increments to total product. Hence, R also defines the magnitude of the marginal product of input x, relative to that of input level X1. From the equation of this production on function, the equation of marginal product is dy = - ARx loger dx 5.13 and the marginal product of i-th input bears the following relationships to the marginal product of the previous input: dy = - R ∂yi-1 5.14 dx              ∂xi-1 To explain the relationship further, we may say that if R = 0.8. and the marginal product for x1-1 is 10. Figure: 5. 3 Nature of Spellman- type exponential function the marginal product of X1 is (.7) x 10 = 8. Based upon these concepts and properties, the above equation finds its expression through the following curve. The total product curve of equation is asymptotic to M. The marginal product curve is asymptotic to the zero axsis, never becoming negative. For this reason, the function is not appropriate for samples drawn from experiments where input magnitudes are great enough to cause a decline in total product. The product curve approaches the maximum M as X increases and AR decreases. If used as a response function the equation is y = A (l-Rx)                                                      5.15 and the input axis has origin at M-A in Figure. Similarly, yield then becomes asymptotic to A, rather than M. 5.5    Quadratic Production Function In a single variable input X, the equation of the quadratic production function takes the following form Y = a + bx-cx2                                             5.16 with a minus before C to denote diminishing marginal returns. This function does not impose such strict restraints on the production function as does the Cobb-Douglas or Spellman equation. It allows both a declining ‘and negative marginal productivities, but not both increasing and decreasing marginal products. A maximum total product is defined where input magnitude or X is equal to 5bc-1. The elasticity is not constant as in the power function, but declines with input magnitude as indicated by elasticity equation. Ep = bx – 2cx2                                 5.17 a+bx –cx2 The marginal products do not bear a fixed ratio to each other as in the case of the Spellman function. Finding the first derivative of the equation W “ b'2 cx                 5-18 Use of the quadratic equation does assume a particular characteristic in relationship between marginal products; namely that they decline by a constant absolute amount. In other words, the marginal product curve is linear (the second derivative being a constant equal to 2c) and the total product curve forms a “mirror” curve with the portion on the right of the maximum being the “mirror” of the portion of the left. Modification of the polynomial equation ya + bx –cx2 may be used to relax the restraint that marginal products declines by a constant amount, y = a-bx + c√x                                5.19 This square root equation provides a simple compromise between the power and the quadratic form in equation y = a + bx - ex2 The appropriate functional for estimating production relationship will, of course, depend on the type of phenomena being examined. Ordinarily, those represented by crop response to fertilizer will have diminishing marginal products for all inputs greater than zero. But there are cases where increasing marginal products have been encountered for initial inputs of nutrients. 5.5.1    Two variables Quadratic Function Extension of the quadratic function y = a + bx -ex2 two inputs results in the production surface equation, which will take the following form y= a+b1x1 + b2 x2- b3x1 – b4x2 + b5x1x2                     5.20 The equation shows that diminishing returns exist for either input alone but there is a positive interaction between the two factors. The corresponding iso-quant equation has been derived by treating Y as representing some constant level of output and then rearranging the resultant expression in the form of a quadratic equation of variable x1. The equation then has been solved for x1, and this is also an iso-quant equation. b+b^ + [bj +b5x2)2 - 4b3 (y+b4x\ -b^ - a)] ” '             2b; 5.21 5.5.2    Main features of iso-quants of quadratic function (1)    Unlike the iso-quant of C-D function, the iso-quants of quadratic function are not asymptotic to the input axis. Rather these are circular or elliptical in shape. (2)    In contrast to the surface formed by the power function, the surface formed by the quadratic function can have a distinct peak, denoting a maximum output for a single imitational combination of the factors. (3)    Certain levels of output can be attained with zero input of x1, and iso-quants are allowed to intersect the input axes of a contour map of the surface. Quantity of X2 Fig. S.4 5.5.3    Iso-quants and Iso-clines for quadratic function The equation of substitution rates corresponding to equation of iso-quant is By selling the equation of substitution, rates equal to the constant price ratio, the following iso-clines equation is obtained s kb. - b2 b5 + 2kb3 kb. + 2b. b5 + 2kb3, 5.23 while the isoclines are linear, but unlike the iso-clines of power function, they do not impose the same conditions On production surface. Iso-cline though linear is not forced to pass thought the origin. Only a single iso-cline, the one representing a substitution rate of K such that does so. kb, -      =0      .              5.24 b5 + 2kb} ’ . If ‘his ratio is great it than zero, the iso-clines intersect the X1 axis, and if it less than zero, they intersect the X2 axis. The iso-cline representing a ridgeline, with a zero MRS of X2 for X1, can he derived when the partial derivates shown in equation 5.25 is equated to zero. It has value 5.25 and intersects the X2 axis where the later resource of input magnitude X = .5 b2b4-1. Similarly, the ridge lines defining a zero rate of substitution of X1 for X2 intersects the input axis at X1 = .5b1b3-1. The ridgelines generally have a positive slope. A map of iso-quants and iso-cost for a quadratic function with positive interaction between factors is included in Figure 5.4. Exercise 5.1 Q1 . What are the Uses of Cobb-Douglas Type Function? Q2. What do you mean by Production function? Q3. What are the Main features of iso-quants of quadratic function? 5.6    SUMMARY This chapter concentrated on the production function. In this chapter we dealt with the Cobb -Douglass Production Function and its uses. We also read Spillman function. The next topic we gone through in this chapter was the Quadratic Production Function and the main features of iso-quants of quadratic function. 5.7    GLOSSARY •    Production Function: A function that specifies the output in an industry for all combinations of inputs. •    Iso-quant: A curve representing the combinations of factor inputs that yield a given level of output in a production function. •    Iso-cost line: A line along which the cost of something -- usually a combination of two factors of production -- is constant. Since these are usually drawn for given prices, which are therefore constant along the line, an isocost line is usually a straight line, with slope equal to the ratio of the (factor) prices. •    Cobb-Douglas Type Function: A popular functional form for production and utility functions. With arguments X = (X1,...,Xn), the function is F(X) = AΠiXiαi, where Σiαi = 1 and A are positive constants. This function has elasticity of substitution between arguments equal to one. As a production or utility function, it has competitive expenditure shares equal to αi. •    Returns to Scale: A property of a production function such that changing all inputs by the same proportion changes output more than in proportion. Common forms include homogeneous of degree greater than one and production with constant marginal cost but positive fixed cost. Also called economies of scale, scale economies, and simply increasing returns. Contrasts with decreasing returns and constant returns. 5.8    ANSWERS TO SELF CHECK EXERCISES Exercise 5.1 Answer 1 . Refer to Section 5.3.3. Answer 2. Refer to Section 5.2. Answer 3. Refer to Section 5.5.2. 5.9    SUGGESTED READING 1.  Heady, E.O. and J.F. Dillon (1961): Agricultural Production Functions, N.Y. Prentice Hall. 2. Kalilon, A.S. and Karam Singh (1980): “Economics of Farm Management” in India, Bombay, Allied Publishers. 3.    Upton, Martin (1976): Agricultural Production Economics and Resource use. 5.10    TERMINAL QUESTIONS Q1 . Explain the meaning of the term production function as used in agriculture. Discuss the main characteristics of Cobb-Douglas production function and why it is used in agriculture? Q2. To What extent Cobb-Douglas production function is effective in Indian agriculture? UNIT-06CONCEPT AND TYPES OF PRODUCTION FUNCTION STRUCTURE 6.0 Objectives 6.1    Introduction 6.2    Production Function 6.3    Diminishing Returns 6.3.1    The Law Of Diminishing Returns 6.4    Increasing Productivity 6.5    Decreasing Productivity 6.6    Constant Productivity 6.7    Stages of Production 6.7.1    Stage I 6.7.2    Stage II 6.7.3    Stage III 6.8    Input-Input Relationship (How to Produce) 6.8.1    Profit Maximization Criterion 6.9    The Product-Product Relationship (How to Combine Enterprises) 6.9.1    The Production Possibility Curve 6.9.2    Types of Product-Product Relationships 6.9.3    Complementarily, supplementary and Competitiveness among Products 6.10    Summary 6.11    Glossary 6.12    Answers to Self-check exercises 6.13    Suggested Reading 6.14    Terminal Questions 6.0 OBJECTIVES After going through this unit you will be able to: >    Explain the Production Functions. >    Elucidate the different stages of Production >    Enlighten the Product-Product Relationship >    States the different types of Product- product Relationship 6.1    INTRODUCTION The principle of rationality, one of the corner stone’s of economic theory, States that human beings, will, given enough information, seek to maximize their gains by obtaining the highest possible return for any given resource or else will seek to economize (minimize) using the smallest quantity of a resource to obtain a given return. In a market economy, each producer continuously adjusts his production to give the highest profits. ‘The production process and the decision making underlying it constitute a dynamic, ever changing situation. Production is concerned with the supply side of market. In the production process, various inputs are transformed into some form of output. Combining seed, fertilizer, labour, equipment and land to produce wheat is an example of production. In production analysis, we study the least cost combination factor inputs, factor productivities and returns to scale. ‘The producer is confronted with three basic types of problems; how much to produce, how to use resources for production and what to produce. The discussion of these principles of resource allocation is the subject matter of the present lesson. 6.2    PRODUCTION FUNCTION A production function expresses the technological or engineering relationship between the output of a product and its inputs. In other words, the relationship between the amount of various inputs used in the production process the level of output is called a production function, for example, a farmer growing wheat combines soil, fertilizers, pesticides, water, seeds, labour and capital (farm equipment, etc. ) to yield a crop of wheat. Some of these inputs may be fixed in supply: the land available, and the existing amount of capital. The other inputs .nay be varied and, accordingly the level of output may be expected to vary. Although an individual farmer cannot alter a production function, he can choose which of the many possible ways of producing particular products he will use. Technology also contributes to output growth as-the productivity of various inputs depends on the state of technology. The point which needs to be emphasized here is that the production function describes only efficient levels of output, that is, the output associated with each combination of inputs is the maximum output possible, given the existing level of technology. Thus we can express the relationship in the following way. Goods Combining and result from resources Service Using y to symbolize goods and services and x to symbolize resources, we could write the production concept as a simple mathematical expression, called a production function. y = f (x) This is read as y (output) is a function of x (the resources used). Output is measured from the units of resources (x). The total physical product varies with the quantity of resources used in production Table 4-1 illustrates the production situation- Table 6-1 The Production Function: y - f (x1/X2 ....Xn) | Units of X1 used TPP | Units of Y Produced | |---|---| | 0 | 0 | | 1 | 3 | | 2 | 8 | | 3 | 11 | | 4 | 12 | | 5 | 11 | Here consider just one firm producing only one product, using just one variable resources, function fitting our illustration is à modification of our general function. y = f (x) or Y = f (X1/X2...Xn) Where X, is a specific resource used in various amounts with a set of fixed resources (X2.......Xn) Through repeated studies, some consistent characteristics among input-output relationships have been observed When only one input is varied (X1) while all others are held constant (X1… Xn), TPP (total physical product) will at first increase rapidly, then increase less rapidly and finally decreases Since production economics rests on that observation, it is essential to explore in greater depth. 6.3    Diminishing Returns If there were no diminishing returns, there would be no limit to the amount of wheat that could be grown on an acre of land. Theoretically, the nation’s demand for wheat could be met by sowing more and more wheat and putting more and more fertilizer on that one acre. We know that is impossible because of diminishing returns a phenomenon that has become so established as a basis for economic studies, .we call it the law of diminishing returns. 6.3.1    The Law Of Diminishing Returns When successive equal units of a variable resource are added to a given quantity of a fixed resource, at some point the addition to total output will decline. Table 6-2: Diminishing Returns | Variable resources X, | Fixed . Resources | TPP . Y ' | Addition to TPP | Output per ' Unit of X, | |---|---|---|---|---| | | X,_____X s | | MPP=^- | y APP = — . x | | 0 | 1 | 0 | | — | | I | 1 | 3 | 3/1=3 | 3/1 =3 | | 2 | 1 . | 8 | 5/1=5 | 8/2=4 | | | | | | „ 2 | | 3 | ! | 11 | 3/1=3 | 11/3 = 3-7- | | 4 | 1 . . | 12 | 1/1 =1 | 12/1=3 | | .       5 ’ | 1 | 10 | •2/1=2 | 10/5 = 2 | Note that in Table 6.2 we have added successive units of X, say nitrogen Fertilizer, to a set of fixed resources, x2 Xn, say one acre” of land including everything else needed. The production of y, say wheat changed with each unit of X1, used. TPP first increased at an increasing rate 0 to 3 to 8, but with the third unit of X, the total only increased to 1 1 ; or the addition to the total was less for the third than for the second unit of X1. The MPP-column shows the addition to the total for each successive unit of variable resource used. It is possible to use so much of the variable, resources that total production is reduced. Too much nitrogen, in other words, will harm yields. By graphing the information in 6.2 we can show the relationship among TPP, MPP and APP more clearly (Figure 6.2). Though the relationship will held in all cases but it should be kept in mind that the hypothetical data so selected was to illustrate the relationship as clearly as possible. Certain relationships will always exists between TPP and MPP. Look at Table 6.2 and Figure 6.2 TPP from X1 = 0 to X2 = 2 increased at an increasing rate, and MPP was increasing. After the second unit of X1 the addition to TPP declined so that after point A, TPP increased at a lower rate. The MPP reached its peak point A, at the same point that TPP began its slower rate of increases. Between A' and B', TPP continued to increase and MPP between A’ and B’ continued to decline but was always a positive point. With each successive unit of X1 less was added to output. Between the fourth and fifth unit of XJ5 the additional input did not increase output. When TPP was greatest, at point B, MPP = 0 at points B. Also the relationships of APP to MPP should be observed. APP always increases as long as it is less than the MPP because the marginal output pulled the average up. Each student is an expert in this concept as applied to grades, instantly, a student knows that the grade he receives on the last test will improve his average as long as the grade is greater than the average. APP will be greatest, point C, when APP = MPP and will always be greater than zero so long as there is any output. Productivity has a special meaning and cannot be considered the same as production. Production is the total output. Productivity is the relationship between output and inputs used (y/x) and are an efficiency measure. When per unit output increases, productivity increases. Table 6-3 Increasing, Decreasing and Constant Productivity | | Increasing | Decreasing | Constant | |---|---|---|---| | Units of X1 | TPP | MPP | Units of X1 | TPP | MPP | Units | TPP | MPP | | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 1 | 1 | 1 | 1 | 5 | 5 | 1 | 3 | 3 | | 2 | 3 | 2 | 2 | 9 | 4 | 2 | 6 | 3 | | 3 | 6 | 3 | 3 | 12 | 3 | 3 | 9 | 3 | | 4 | 10 | 4 | 4 | 14 | 2 | 4 | 12 | 3 | | 5 | 15 | 5 | 5 | 15 | 1 | 5 | 15 | 3 | 6.4    Increasing Productivity As successive units of a variable resource are added to a given quantity of fixed resources, total physical product increases at an increasing rate, or the marginal physical product increases, (see Table 6.3 and Figure 6.3) 6.5    Decreasing Productivity As successive units of a variable resource are added to a given quantity of a fixed resource total physical product increases at a decreasing rate or the marginal physical product decreases. Figure 6-3. Increasing. Decreasing and Constant Productivity 6.6    Constant Productivity As successive units of a variable resource are added to a given quantity of a fixed resource, total physical product increases it a constant rate or the marginal physical product remains constant. The study of the economics of production is based on following assumptions, 1.    The producer wants to maximize profits. 2.    There is a single business (farm) producing only one product. 3.    There is a single infinitely divisible input and no limitation of the availability of that resource. 4.    There is no uncertainty. 5.    There is no change in technology or institutions. 6.7    Stages of Production Economists have found in studying the production function, that it can be broken into three separate parts, each with its own characteristics. The reason for this division lies in the fact that it helps us in moving towards the most efficient point of resource allocation, Identifying the three- Stage I, Stage II, and Stage III rests on diminishing returns and the resulting relationships among TPP, MPP and APP. 6.7.1    Stage I Stage I is that portion of production function having an increasing average physical product and a marginal physical product greater than the average physical product. The greatest technical efficiency the highest per unit output (y/x) occurs when the average physical product is highest (Point B, Figure 6.4). That occurs at the end of stage I of production. The greatest addition to total output (TPP) from one unit of the variable input occurs when the marginal physical product is highest (Point A, Figure 6.4). It is easy to conclude that the best level of production may be at either point A or B. In stage I the MPP is greater than APP, MPP reaches its maximum, and TPP increases at an increasing rate. 6.7.2    Stage II Stage II is that position of the production function when MPP is less man APP, (but greater than zero), and TPP is still increasing. Stage-H ends when additional input results in a decrease in output. 6.7.3    Stage III Stage III begins at that point (TPP is greatest and MPP = 0). Profits can never be maximized in stage III because the use of additional inputs causes a decrease in output. It should always, be remembered that profits cannot be maximized in stage I and III. A producer interested in maximizing profits must produce in stage II. It will always pay to use more of the variable resource, X1, as long as the increased output, y, from the added X, is worth more ‘than the cost or the added X1 used to produce it. This has reference to the fundamental concepts of marginalism. The criteria for profit maximization are that change in output multiplied by price of output should be equal to change in input multiplied by price of input. The profit maximization formula can be stated more simply if we multiply each side by the py, then' MVP = PX, (Where MVP = marginal value product). The formula for profit maximization, MVP =PXt, is the criterion or guide to determine the best level of production. To present the input-output relationship we made several assumptions Also, to present the relationship as simply as possible certain special situations were ignored. Some of which we shall consider. Profits are maximized when MVP = PX1 Though MVP = PX1 is a necessary condition for profit maximization, the sufficient condition is when there are diminishing marginal returns. As long as the MPP is greater man the APP, the APP will increase. Without knowing the prices of Y or X1, it can be concluded that profits will increase, while APP is increasing. The decisions on “how much input to use” and “how much product to produce” are not separate and different decision. Though they are the same, yet they have very different advising problems, depending on the stage of production. Each farmer’s resource problems are unique when they arc in stage II. Only for farmers in stage I general recommendations are useful. If a producer is in stage III, a recommendation is fairly straight forward use less input or produce less product. Both PX1 and Py are necessary to determine MVP = PX1. Any change in the pace of either the product or the input will give a new optimum resource level. If the Py goes up, it pays to use more of X1, if the Py falls, the amount of X1 used must be cut back. If the PX1 falls, use more X1, if PX, increase use less. 6.8    Input-Input Relationship (How to Produce) As already discussed, the production function indicates the; alternative combination of various inputs which can produce a given level of output. While all these combinations are technically efficient, the final decision to employ a particular input combination is purely an economic decision and rests on costs. A farmer should choose that combination which costs him the least. We can modify our basic production function y = f (X1/X2,…..Xn), to reflect the addition of a second, variable resource, y = f (x1 , x2/x3……. xn), where x1 and x2 are the variable resources and X3...... xn are the fixed resources. Out task is to determine the most profitable amounts of x1 and to combine with x3...... xn to produce a given level of output. All the assumptions of the input-output relationship except the single variable resource assumption will hold. In the input-input relationship there will be two variable inputs produce a given level of output. To aid our thinking in this regard the concept of an iso-product curve which shows all the possible combinations of two variable resources that can produce the same amount of a product. Figure 6.5 The Iso-product Curve Figure 6-5 illustrates the iso-product curve when y = 10 units. Every point on y (A, B, C or any other point) represents 10 units of y that can be produced with varying combinations of units of (x1) and (x2). The marginal rate of substitution (MRS) refers to the amount a resource that can be decreased as use of another resource is increased by one unit without affecting the output. Algebraically stated: The marginal rate of substitution is always stated as a negative; the iso-product curve always slopes downward and to the right. A diminishing marginal rate of substitution is apparent when successive equal units of a variable input (x1) are substituted for another variable input (x2) and the successive equal units of the substitute (x2) gradually replace less and less of the original variable input (x1). As has already been mentioned that the final decision to employ a particular input combination is purely an economic decision and rests on costs. An entrepreneur should choose that combination which costs him the least. To aid our thinking in this regard, economists have developed the concept of iso-cost (equal cost) line, which shows all combinations of inputs x1 and x2 that can be employed for a given cost (in rupees) or the iso-cost line represents all possible combinations of two variable inputs that can be brought with a given amount of money. The slope of the iso-cost line is determined by the price ratios. Any change in the prices results in a different slope (see Figure 6.6). Units of Input (Xj) Figure 6-6 Iso-Cost line ; Rs 6 available PX 1 = Re I, PX2 = Rs 1.50 Iso-Cost line : Rs 6 available PXt = Rs.2; PX, = Rei 6.8.1    Profit Maximization Criterion If our objective is to maximize profits at a given level of output then cost minimization is identical to profit maximization. We will seek the least cost combination of resources to produce the given level of output. To determine the least cost combination, we need to know the price of each factor and the marginal rate of substitution between factors. When that is known, we can determine the profit maximizing combination by finding the point where the marginal rate of substitution is equal to the price ratios. By connecting the input combination product curve. Using the least cost we point of tangency shows us the optimum points we can construct an isocan construct the iso-cost line. The resource combination. Flgurt 6.7 The least concept has a wide range of applications. Understanding it well enough to make effective use of it in agricultural production is well worth your time and effort. Any time a manager is confronted with resource allocation decisions, he will find the factor- factor principle basic to his decision making. When there is a change in the price relationship between two inputs, there will be a new least cost combination of the two. The cheaper, one will be substituted for the more expensive one until once again the MRS equals the inverse of the price ratio. 6.9    The Product-Product Relationship (How to Combine Enterprises) We have provided a basis for answering the first two of the three basic production questions, How much to produce? How to produce the product? What to produce? The third, “What to produce.” is ¿he topic of this section when producers desire to maximize profits; they try to find those lines of production that add most to profits. Their resources will be allocated to the enterprises that give the highest returns. Our objective here is to provide an understanding of how to determine the combination of enterprises that maximize profits. 6.9.1    The Production Possibility Curve Just as two analytical tools i.e., (a) iso-quants and ‘(b) iso-cost lines are required for determining the optimally conditions regarding factorfactor relationship. Similarly, a set of two tool; of analysis namely (a) the production possibility curve and (b) the iso-revenue lines are needed for determining the optimality conditions concerning product-product relationship. A production possibility curve represents all possible combinations of two products y1 und y2) that can be produced with a given amount of resources. Table 6.4 Combinations of output from Two Enterprises (y1 and y2) when 100 Units of Input are available | Units of Output | |---| | Y2 | Y1 | | 25 | 0 | | 23 | 5 | | 20 | 10 | | 16.5 | 15 | | 10 | 20 | | 0 | 25 | The production possibility curve using 100 units of input has been illustrated in Table 6.4. The 100 units will produce any of the combinations of y2 and y1 listed. Such enterprise combination data can be plotted on a diagram, Figure 6.8. Here we will plot y1, the output being substituted in equal increments for y2 on the horizontal axis and y2, the output being substituted out of the business, on the vertical axis. Each of the output combinations can be plotted and a line connecting the points gives us a production possibility curve. Units of output (y^ Fig 6.8 The Production Possibility Curve An iso-revenue line represents all possible combinations of two products that, if sold, will give a fixed amount of revenue. For example, if the Py1 = Rs2 and Py2 = Re.l, then a Rs. 60 income can be obtained by selling: | Units of Y1 | Units of Y2 | |---|---| | 0 | 60 | | 10 | 40 | | ?0 | 20 | | 30 | 0 | When those data were plotted in Figure 6.9, the straight line connecting y2 = 60 and y1 = 30 is the iso-revenue line. The slope of this line is determined by the price ratios, in this case Rs 2, Re 1. The isorevenue line is very similar to the iso-cost line; both indicate a constant value. Opportunity cost of is potential income foregone from a resource as a result of using that resource for another line of production. Equi-marginal returns refer to allocating resources so that the last unit of resources gives the same returns from each product produced. The idea algebraically can be expressed as follows: MVPY1 = MVPY2……...MVPYn This tells us that we have allocated x1 among all our enterprises so that the Value of the output resulting from using one more unit of x, would be the same for any time of the enterprises, if there were unlimited resources, that would be true when the MVPY1 = MPPY2 = …..MVPYn = Px1. When resources are limited the equi-marginal returns will occur before MVPY = PX. The marginal rate of product substitution is the amount one product (y2) changes in quantity when the other product (y1) is increased by successive equal units, when total resources used remains constant. The MRPS is computed by using this formula: The data from Table 6.1 are presented graphically in Figure 6.1 0. The MRPS gives us the slope of the production possibility curve. Fìr- 6-10 Marginal Rate of Product Substitutions 6.9.2    Types of Product-Product Relationships When Substituting enterprises within a business, the enterprises may help, compete or have no effect on each other. When resources are taken from one enterprise and placed in another and output of both increases, the relationship is said to be complementary. When enterprises have no effect on one another, there is a supplementary relationship. Enterprises compete when the addition of one reduces the output of the other. 6.9.3    Complementarily, supplementary and Competitiveness among Products Between A and C, a shift of resources from y2 to y1, results in an increase in output of both y1 and y2. This portion of the curve represents a complementarily between y1 and y2. The supplementary relationship exists between B and D as we can shift some resources to produce y2 without giving up any y1, Oa5 units of y2 can be produced. Between C and D a shift of resources from y2 to y1 results in a loss of output from y1. This portion of the curve represents a competitive relationship in which y, competes with y2 for the resources. Profits can be maximized only in the competitive portion of the production possibility curve. To determine profit maximization, we must know the marginal rates of product substitution and the price of the products. The profit formula gives us a guide to determine whether the returns from an enterprise are greater than the opportunity costs of giving up other enterprises. When considering just two enterprises the formula is: ^ = ±y2                   ’ ’ Ay, Py, For more than two enterprises if can be etates.MVPZ (Y,) MVPX ~ MVPX (yn)Px '    “ Px       Px Table 6.5 Profit Maximization for Two Enterprises when the Py1 = Rs 3 and Py2 = Rs 5 | Units of Output $ | | âYl | 4YI | MRPS ^A. | Revenue | Total | |---|---|---|---|---|---|---| | | PV, | | 18 | 0 | ■- | | Rs. 90.00 | Rs. 0.0 | Rs. 90.00 | | | 20 | 5 | +2 | 5 | 2/5 | 100.00 | 15.00. | 115.00 | | 18 | • 10 | -2 | 5 | 2/5 | 90.00 | 30.00 * | 120.00 | | 15.5' | 15 | -2.5 | 5 | -2.5/5 | 77.50 | 45.00 | 122.50 | | 12.0 | 20 * | -3.5 | 5 | -3.5/5 | 60.00 | 60.00 | 120.00 | | | 20 | -12 | 0 | -12/0 | 0.00 | 60.00 | , 60’,00 | Profit maximization for the product-product situation is Py1/ Py2 = Rs. 3/Rs. 5 by looking down MRPS column, between -2.5/5 and - 3.5/5, there must be a point where Rs.3/Rs. 5 = -3/5. Using the data in Table 6.5, we have prepared a diagram, Figure 6.12 illustrating profit maximization. The production possibility curve gives us the MRPS, and the iso-revenue line gives us the price ratio. The point where the two are just tangent fulfills the profit maximization criterion and tells us the most profitable combination of the two enterprises. The iso-revenue line was determined by taking the highest revenue possible Rs 122.50 dividing it by the D Rs. 122.50                    Rs. 122.50^     „py2 = S = 24.5, and by Py = “^^=40.8. That gives us the number of units required to generate Rs. 122.50 if only one were produced. By locating each of the quantities on the y2 and y, axis and connecting the two points, we have iso-revenue line. No combination of y2 and y, production will give Rs. 122.50 income except where ( Iko-revenue line Rs. 122.50 10 20 30 40 50 60 Unit* of Output (Y^ Figure 6.12 Profit Maximization for Two Enterprises when the Py1 = Rs. 3 and Py2 = Rs. 5. Exercise 6.1 Q1 . What are the different stages of production? Explain each one in detail? Q2. Explain input-input relationship? Q3. What do you mean by Production function? 6.10    SUMMARY Production is concerned with the supply side of market. In the production process, various inputs are transformed into some form of output. Combining seed, fertilizer, labour, equipment and land to produce wheat is an example of production. A production function expresses the relationship between the amount of various inputs used in the production process the level of output is called a production function, for example, a farmer growing wheat combines soil, fertilizers, pesticides, water, seeds, labour and capital (farm equipment, etc. ) to yield a crop of wheat. Some of these inputs may be fixed in supply: the land available, and the existing amount of capital. Economists have found in studying the production function, that it can be broken into three separate parts, each with its own characteristics. The reason for this division lies in the fact that it helps us in moving towards the most efficient point of resource allocation, Identifying the three- Stage I, Stage II, and Stage III rests on diminishing returns and the resulting relationships among TPP, MPP and APP. Input-input relationship deals with how to produce with the aim of maximizing profits. The product- product relationship deals with the combining of Enterprises. 6.11    GLOSSARY •    Production Function:  a mathematical way to describe the relationship between the quantity of inputs used by a firm and the quantity of output it produces with them. If the amount of inputs needed to produce one more unit of output is less than was needed to produce the last unit of output, then the firm is enjoying increasing returns to scale (or increasing marginal product). If each extra unit of output requires a growing amount of inputs to produce it, the firm faces diminishing returns to scale (diminishing marginal product). •    Diminishing Returns:   The fall in the marginal product of a factor or factors that eventually occurs as input of that factor rises, holding the input of at least one other factor fixed, according to the Law of Diminishing Returns. •    Increasing Productivity: As successive units of a variable resource are added to a given quantity of fixed resources, total physical product increases at an increasing rate, or the marginal physical product increases. •    Decreasing Productivity: As successive units of a variable resource are added to a given quantity of a fixed resource total physical product increases at a decreasing rate or the marginal physical product decreases. •    Constant Productivity: As successive units of a variable resource are added to a given quantity of a fixed resource, total physical product increases it a constant rate or the marginal physical product remains constant. •    Production Possibility Curve: is the locus of various combinations of two goods which can be produced with the help of a given factor of production when fully employed. 6.12    Answers to Self-check exercises Exercise 6.1 Answer 1 . Refer to Section6.7. Answer 2. Refer to Section6.8. Answer 3. Refer to Section6.2. 6.13    SUGGESTED READING 1.    John Sjo (1976): economics for Agriculturist Grid, INC. Ohio. 2.    Martin Uptron (1976): Agricultural Production Economics and Resources Use Oxford University Press. 6.14    TERMINAL QUESTIONS Q1 . With the help of table and diagram explain Iso-Product curve? Q2. Examine the different types of Product- product Relationship? UNIT–07EFFICIENCY IN RESOURCE USE Structure 7.0 Objectives 7.1    Introduction 7.2    Technical Efficiency 7.3    Economic Efficiency 7.4    Input Output Relation and Resource Allocation 7.4.1    Irrational Resource Use in stage I 7.4.2    Stage II and Irrational Resource Use 7.5    Selecting the Optimum Levels of the Input and Output 7.6    Input output relationship the case of more than one variable input 7.7    Enterprise Relationships and the Optimum Combination of Products 7.8    Allocative Efficiency of Resource Use in Indian Agriculture 7.9    Summary 7.10    Glossary 7.11    Answers to Self Check exercises 7.12    Suggested Readings 7.13    Terminal Questions 7.0 OBJECTIVES After going through this unit you will be able to: •    Explain Technical Efficiency •    Explicate Economic Efficiency •    Elucidate the Input Output Relation and Resource Allocation •    Explains how the selection of optimum input and output levels by done by the producer 7.1    INTRODUCTION Several forces determine how resources of a farm are used or should be used. Two of the most important of these are (i) the technical conditions of production and (2) the structure and relationship of market prices. Technical conditions of production refer to the nature of the relationship between resources and products. The quantity of a single resource or of all resources to be used by a farm depends as much on the nature of the production function as on the level and structure of prices. The other relationship in farm production involves the allocation of given resources between competing enterprises. It is termed the product-product relationship. It again refers to the choice between two or more alternatives. Here, we have discussed there aspect in detail. 7.2    TECHNICAL EFFICIENCY Most  Physical  scientists  concern themselves  with technical efficiency.  Technical  efficiency  may or  may not be identical with economic efficiency. This type of efficiency is measured by magnitude of the physical ratio of product output to factor output; the greater the ratio, the greater the degree of technical efficiency. There are two ways to measure technical efficiency in agriculture 1.    Workout the magnitude of physical ratio of product output to the quantity of the   variable input used for this production. Such concept is often used in    animal husbandry where production of maximum milk, beef, chicken, wool, etc.     Is concerned, yield per unit of the variable factor of production like feed. Thus,    such efficiency is maximized where the average product is the highest. 2.     Instead of working out the ratio of the product output to variable input, some      physical scientists are more interested in obtaining the ratio of product output to    input of fixed factor. Thus the interest concentrates around obtaining maximum     yield per hectare, wool per sheep or milk per cow. Such efficiency is maximized     generally at a higher level of variable input as compared to that used in maximizing the technical efficiency with respect to the use of the variable input. This type of “technical” efficiency is maximizing where total product (obtained for one hectare of land or one dairy cow) is at its maximum. Agronomists and some other plant scientists generally treat such a concept of technical efficiency as their goal. 7.3    ECONOMIC EFFICIENCY Economic efficiency is denoted when resources are used in a manner to maximize the particular objective or end quantity which is relevant to the economic unit under consideration. If the unit is the farm business the relevant quantity to be maximized is resource efficiency to be measured. The necessary conditions for maximization of economic efficiency can be outlined as:— 1.    No greater physical output can be had from the same resources by any other method of combining them, and 2.    Same level of production cannot be obtained .by using fewer amounts of one or more resources. For maximization of economic efficiency the sufficient condition can only be defined when the input and output prices are employed for maximization of profits. The necessary condition for profit maximization can be stated in the form of following equations: Price of factor Price of product = Marginal product of resource Px _ AY               “ • Py Ax               •  ''        .......(2) These two equations state the same thing; since Px denotes the price of factor x1 while Py denotes the price of product y; and of product y; and "X~ ^e chan8e in output of y for each. 1-unit change in input of X, denotes the marginal product of each unit of the resource. Since ^x the marginal product of the resource,, is indicative of the rate of change in product Y for each unit change in factor x, profits are at a maximum when the ratio of prices is inversely equal to the ratio at which resource is trans formed in to product; as equation 1 and 2 indicate, the price of the factor is always ‘over’ the price of the product while the change in product is always ‘over’ the change in factor. 7.4    INPUT OUTPUT RELATION AND RESOURCE ALLOCATION: The input-output relation and the three stages of production are presented in the figure given below: In the above figure, stage I ranges from a zero input to a xb input of the variable factor. In other words, stage I extends to the input which results in a maximum average productivity of the variable factor; the maximum point on the average curve defines the end of stage I. Stage II extend from the input denoting a maximum average product, xb units of input in the figure, to the one defining the maximum total product, xc units of input in the figure. In other words, all resource inputs between (i) the one consistent with maximum product per unit of variable factor and (ii) the one consistent with a maximum product from the fixed factor, fall in stage II, Stage III includes all inputs which have a negative marginal product and extends over the entire range of declining total output. 7.4.1    Irrational Resource Use in stage I: Any level of resource use falling in stage I, is uneconomic. Returns, measured in profit to the individual or in social product, can be increased by applying more quantity of variable inputs to the factors which are otherwise considered fixed. The average productivity of all pervious inputs of the variable resource increases continuously as additional among of variable resources are added within stage I. As production per unit of fixed factor is pushed to the limits of stage I, a greater product is forthcoming from the fixed factors as well as from each unit of the variable factor. The farmers can obtain more product from the same resources by rearranging the combination of “fixed” and variable factors within this stage. A greater product from given resources can be attained by discarding or leaving idle part of the factor which was otherwise considered fixed. 7.4.2    Stage II and Irrational Resource Use: Stage III is also an area of irrational production, and, as in stage I, resource can be left idle with the effect of increasing total product The only difference is that now it is the variable factor rather than fixed resource which we withdraw from use. If the product has any price or value whatsoever, economic return always must increase as resources are rearranged within stage III. Even if the variable factor is a free agent of production, a greater economic return can always be had by using less of it. Rational Production and Resource Allocation: Stage II is the only economic area of production. .The rate at which variable factors are applied to fixed factor can never fall outside of this stage if economic return is to be maximized. However, the exact intensity of production which is economic cannot be specified within stage II until prices and costs or other choice indicators can be specified. Thus, irrational production can be defined as it relates to profit maximization. 7.5    SELECTING THE OPTIMUM LEVELS OF THE INPUT AND OUTPUT Farmer as a manager often has to decide: how much fertilizer to use per hectare? How much seed or chemicals, to apply per hectare? How much ‘concentrates to feed per animal for milk production? These are only a few examples of many questions that have to be answered for obtaining maximum profits on the farm. In general, the farmer needs to know the quantity of a variable input that should be applied to a given quantity of the fixed resources on his farm. People often talk about applying the quantity of variable input that maximizes the yields rather than the profits. With due consideration to economic point of view, the optimum level of a variable input is the one that maximizes profits and not the one that maximizes yield. However, in special type of economics while the objective may be maximization of output, rather than profits, yield maximizing level of input use would also be the optimum level. The decision making rule under limited capital funds would thus be kept on increasing the level of production by using more and more quantities of variable input as long as the added return (Marginal Return) is greater than the added cost. Eventually, under the diminishing returns, the optimum level of variable input would be one where: MVP=MIC, i.e., where the marginal value product due to the additional (last) unit of the variable input is just equal to the marginal input cost, i.e., the cost of that unit of the input. This is, however, only the necessary condition for determining the profit maximizing level of the variable input. Sufficient condition for profit maximization also requires that the MVP is falling. Under perfect competition, as obtained generally in agriculture, MIC remains constant irrespective of the level of input use and is equal to its per unit price or cost. If the per unit price of output and per unit cost of the variable input were Rs. 1 each, then the principle just described can be used to work out the optimum level of input-use and optimum level of output to be produced from the hypothetical data presented in Table. Such an optimum would occur when 40 units of x are applied and the total product is 46. The reader may answer himself the why part of the problem. Table: Variable Input (x,) and Corresponding levels of TPP APP and MPP | No of units of variable inputs X, | aX, | Total Physical product . ‘ / (TPP) . | AY | Average Physical product (APP)Y/x„ | Marginal Physical (MPP) aY/aX2 | |---|---|---|---|---|---| | 0 | | 0            . | | | | | 10 | 10 | 10          . . | 10 | 1.0 | i:o | | 20 | 10 ' | 24 | 14 | 1.2 | 1.2 * | | 30 | 10 | 36 | 12 | 1.2 | •      1.2 | | 40 | 10 | 46 | 10 | 1.15 | 1.15 | | 50 | 10 | 50         . | 4 | 1.0 | 1.0 “ | | 60 | 10 | 51 | 1 | 0.85 | 0.85 - ' ' | | 70 | 10 | 51 | 0 | 0.73 | 0.73- | | . 80 | 10 | 49 | -2 | 0.61 | 0.61 • | The foregoing principle when expressed in other terms-would mean profits are maximized at a point where the; marginal revenue (MR) is just equal to tie marginal cost (MC). That is, the, problem has now been looked from the angle of output rather than from the point of view of input use. However, the answer would be same from both the approaches, because once the level of one, cither input or output, is determined the level of the other immediately becomes known. Thus the profits are maximized where the last unit of output adds same-to the total revenue as to the total cost. Thus, mathematically, point of profit maximization is where: where MC stands for marginal cost and MR stands for marginal revenue. The reader is warned her not to get confused with MIC and MC and MVP and MR. The above condition of profit maximization is only the necessary condition and it assumes a well behaved production function where the rate of rise in MC is greater than that of MR. Geometrically, this sufficient condition of profit maximization is that marginal cost curve should cut the marginal revenue curve from below. The judicious decision making for carrying out actual production requires the fulfillment of an additional condition. This condition requires that the total revenue (TR) must be greater than the total variable cost (TVC). Mathematically we can state the condition as: TR > TVC. If we divide both TR and TVC by output level (Y), we can also re-state the condition as: AR>AVC, where AR and AVC are the average revenue and average variable cost. In the short run when producer does not have any control over the fixed costs, the only costs to be considered are the variable costs which can be altered, thus, this is a relevant principle to be followed in the short run, i.e., to carry out production, if the producer expects to make enough money to cover the variable costs, liven when TC > TR > TVC, the wisdom lies in carrying out production, rather than closing the production plant, as it ensures the minimization of loss in the short run. The loss would be higher if the production is not carried out at all because of the very nature of the fixed costs which need to be paid irrespective of the fact whether production is carried out or not. In the long run, however, when all the costs become variable over which the fanner can influence his control, this condition reduces to TR > TC or AR > AC. So much about the principle to be adopted for deciding the optimum level of input use when the capital availability if unrestricted and diminishing returns are observed to operate. What then if constant or increasing returns prevail? How to decide about the optimum use of the variable input? The principle to follow is the same as in case of diminishing returns, i.e. go on applying the variable input to the fixed inputs till MR > MC or MVP > MIC Thus, the limit to production can occur in case of increasing returns only if diminishing returns are encountered, which eventually may be due to the management factor. In case of constant return, it is as profitable to use the first unit of the variable unit as it is to use any unit. All the units thus are equally profitable or unprofitable. Thus, either it pays or does not pay to use the variable resource. Following the principle MC = MR, we keep on adding to the variable input, if it is profitable to use and the limit to production can be reached only when diminishing returns start operating. When the capital funds are limited, it may not be possible to expand the use of the variable resource to a level where MC = MR. In such a case the limited quantity of the variable resource should be applied to a reduced level of the fixed resource, if it is possible to do so as may be the case with fertilizer application to land fixed at one hectare. 7.6    INPUT OUTPUT RELATIONSHIP THE CASE OF MORE THAN ONE VARIABLE INPUT More complication can be brought about in the input-output relationship by allowing two or more factors of production to vary simultaneously in the production of a single product. Let the product be Y and factors of production being x, x2,…………………………x3. The decision making is still done by using the same principle as discussed for one variable input-one product relationship earlier. That is, keep on adding more and more of each of the variable input x1, x2……………Xn,. so long as marginal value product due to each one of them, MVP1, MVP2………….MVPn, is greater than their corresponding marginal factor cost, MIC1, MIC2…………………… MICn. Mathematically, when the capital funds are not limited, the profit maximizing level of each of the factors of production, X1, X2………………Xn, can be worked out just by equating the following, i.e., MVP1 = MIC1, MVP2 = MIC2, MVPn = MICn But can we proceed as above? The answer is yes provided we are careful to work out the partial derivatives of total value product with respect to x, x2,…………………xn, i.e., MVP1, MVP2 and MVPn. 7.7    ENTERPRISE RELATIONSHIPS AND THE OPTIMUM COMBINATION OF PRODUCTS 1.    Joint Products: Examples of joint products on a farm are cotton and cotton seed, wheat grain and bhusa, butter and buttermilk, etc. In the short run there is no chance of substituting one for another. For a given breed of sheep the production between wool and lamb yield cannot be changed. Similarly, the wheat grain and bhusa ration for a given variety would be in the same range, thus for all practical purposes, the two products with such a relationship are generally treated as ‘one from the economic analysis point of view. The yields of such two products can be added together in value terms after multiplying with their respective prices. The production, possibility curves for such products are represented by points as in fig. 7.1 . The marginal rate of substitution of one product for another is obviously zero. In the long run, with changés in the relative prices of two research efforts may result in such breeds and varieties which higher quantities of the product with relatively more favourable example, Mexican wheat’s yield’s much higher proportion of bhusa as compared to the traditional wheat varieties. products, may yield price. For grains to 2.    Complementary Products: Two products are called complementary if a transfer of resources to one product (Y2) and an increase its production are accompanied by an increase in the production of the other product (Y2). Since the direction of change is the same ΔY for both the products, hence ~i the marginal rate of substitution of Y2 for Y, would bear a positive sign. A segment of the production possibility curve for such a relationship is given in Fig. 7.2. It means that as we move along AB from A, the production of both the products Y, and Y2 would increase simultaneously with the level of resources remaining unchanged. The two products thus are beneficial to each other in the region A to B. Obviously, as the complementary relationship is pushed too far away from B, the products would start competing with each other resulting in a new relationship. Decision making is rather very “simple”. So long as Y, and Y, bear any positive prices, the rule is to produce at point B where the complementary relationship ends. Even if one of the two products has a zero price the decision making rule remains unchanged. Crop rotations which include leguminous crops provide a good example of complementary relation during a given production period. Rising of oxen and crops on a farm in many parts of the country is yet another example of complementary relation. The reader is requested to write a few such examples for his state. A hypothetical example of such a relation is given below in Table. Table: 7.3 Possible Product Combinations of Y1 and Y2 for 50 Units of Input, x — Complementary Relation. | Units of x, used in producing | Units of Output Produced | |---|---| | X1 | X2 | Y1 | Y2 | | 50 | 0 | 20 | 0 | | 40 | 10 | 22 | 4' | | 30 | 20 | 25 | 6 | | 20 | 30 | 26 | 7 | 3.    Supplementary Products: Two products are said to be supplementary, if for a given level of resources the production of one can be increased without affecting the production of the other. It is thus a border line case between competitive and complementary products. Supplementary relationship between Y1 and Y2 products has been shown by AB and CD segments of the iso resource curve in Fig. 7.3. Production of Y2 can is increased without affecting the level of production of Y1 as we move along AB segment of iso-resource curve. On the other hand, a movement from C to D on another segment indicates that level of Y2 can be increased or decreased without affecting the level of Y2 product. Supplementary, therefore corresponds to linear segments like AB and CD of a production possibility curve, perpendicular’ to Y1 and Y2 axis as shown in Fig.7.3 The slope of AB segment is zero, thus indicating that marginal rate of substitution of Y2 for Y1, during a movement between A and B, is zero. The MRS of Y2 for Y1 is, however, infinity for the range CD. Fig. 7.3: Segments of production possibility curve corresponding to supplementary relation It is a common experience that any supplementary relation, between two products, if carried beyond certain range results into a competitive relation. The decision making is very easy where supplementary relation exists. The rule consists in producing each product at a level where full utilization of the supplementary has been made. Thus, point B or are such points depending on the segment of production possibility curve. This rule would apply as long as both the products have some positive prices, however low the price may be. There are several examples of supplementary in agriculture. Some of the good examples are found in those enterprises which can be introduced on the farm in order to use certain unused or unutilized resources like machinery and human labour. Such products often constitute secondary source of farm income. The utilization of unused-human labour on a certain farm to raise honey or a few poultry birds are such examples. It is also possible to have a non-farm supplementary enterprise for utilizing the unused farm labour during certain lean periods of labour use, e.g. some farmers work as carpenters or masons in some states of India during the lean periods of labour use on the farm in order to supplement their farm incomes. 3.    Competitive Products: Two products are competitive if, with the given level of resources, an increase in the production of one results in the reduced level of production of the other. There are number of example of such products in agriculture and also every supplementary and complementary relation finally ends into this relation The MRS of one product for another say ΔY is negative as the changes in the level of production of the two products are in the opposite direction. Two competitive products can substitute for each other either at a constant, decreasing or increasing rate. The iso resource curves of production possibility curves for such products are drawn in Figs. 7.4 (a) & 7.4 (b). Fig. 7.4 (a) Constant MRS Y2 for Y1 Two products may substitute for each other at a constant rate as shown in Fig. 7.5. It is only a short period phenomenon because such a relationship may not hold for long. Two varieties of any crop and all crops grown on soil of equal productivity, with all inputs including land held constant, during any single crop season provide examples of this type of substitution. Economic decision making is rather easy, i.e. produce only one of the two products depending upon yields and prices. Whenever decreasing MRS exists between two products (ignoring the negative sign before) as shown in Fig. every unit addition to one product, say Y2, replaces less and less amount of the other product, Y,. The iso-resource curve is concave away from the origin and convex to the origin. This type of relation is quite rare. Here, the amount of resources used is so small that the products, Y, and Y2, are being produced only, in the first stage of production. It has already been discussed earlier on input output relation that no rational producer ever operates in the first stage of production so long as he can help it. None the less, examples of this type of increasing MRS can be found on very small farms where capital is very limited and the production of none of the two competitive commodities can be extended beyond first stage of production. Decision making is simple in this case also, i.e., produce only one of the two products depending on relative yields and price. Substitution at an increasing rate between two products (ignoring the  negative sign  of the  MRS) is n common relationship. Such relationship always holds true when both the products are produced in the stage of decreasing returns. The production possibility or opportunity curve in this case is concave to the origin as shown in Fig. 7.5. Increasing amounts of Y, product must be sacrificed for each successive gain of one unit in the other product Y2. As true with other type of opportunity curves, the slope of opportunity curve in figure measures the marginal rate of substitution of product Y2 for product Y,. The concept of MRS can either be expressed as an average (are) or exact (point) concept on the same lines. Rational producer always produces in the range where products are competitive. The level of production of the two products depends on: (i)    Marginal rate of substitution between them, indicating as how they can be    exchanged in production. (ii)    Price ratio, indicating their exchange in the market. The profit is maximized where slope of production possibility curve is equal to that of an iso-revenue line, i.e. Thus, the decision making rules can be stated as follows: (i) It ΔY1, PY,>ΔY1. PY2 more inputs should be diverse; towards the production of Y1, thus producing less of Y2. (ii)    If ΔY1, PY, < ΔY2, PY2, more inputs should be used for producing Y2, and thus production of Y, should be curtailed. The application of the above economic principle in selecting an optimum combination of two products at a given level of resource has been demonstrated With the help of Table 7.6. Table 7.6 Selecting an Optimum Combination of Paddy and Maize Enterprises at 160 kilogram Per quintal production for both the crops is assumed to be the same cost of and Rs. • Optimum combination of paddy and maize. 1 15 and Ks. 105 per quintal have been used as the prices of paddy (PY] and maize (PY2). • Slope of Iso-revenue line is negative of the price ration. The table presents data on paddy and maize yield ‘responses as a result of varying levels of nitrogen application per hectare and the first four column of the table are the tabular representation for the production possibility curve. ‘The given level of resource is 160 kilograms of nitrogen at which the optimum combination paddy and maize outputs is required to be selected. Following the procedure described above, marginal rate of substitution of paddy for maize (MRS Y1, or Y2) is worked out at various combinations of nitrogen application. The marginal rate of substitution of paddy for maize can be observed to increase (in absolute sense) as more and more of the former is substituted for the latter. In this type of product - product relationship, therefore, for obtaining the optimum combination of two products we need to equate the MRS y1 for y2 wall the slope of the iso-revenue line which is just the negative of the ratio between per quintal price of paddy (py1) and per quintal PY1 price of maize (py2), PY1/PY2. Such a combination is PY2 given by 6530 and 2778 kg of paddy and maize in the table. It represents the most profitable combination of the two products at a 160 kg level of nitrogen use when the cost of production per quintal is assumed .to be the same for paddy and maize. All other combinations of outputs of two crops in the table give less profit. The reader should verify it himself by making direct calculation. It must also be mentioned here that the relevant per unit product price to be used are the net prices rather than the market prices when the cost of production per unit of the outputs are different. 7.8    Allocative Efficiency of Resource Use in Indian Agriculture A question is often raised. How far in actual practice, is resource allocation perfect, in Indian Agriculture? In- other words, how far are the general conditions of resource allocation satisfied in agriculture? Obviously the conditions are not always satisfied. Farmers do not always extend resource use to a point when the factor/product price ratio and the marginal physical product of a resource unit are equal. This is due to (c) marginality has no application in farming, (b) economic principle is not understood in rough fashion by any of the of farmers, (c) farmers are not rational in their use of resources, or (d) all resource inputs inability to fulfill these condition are: (i) lack of knowledge of the relevant input-output relationships and cost structures (2) the uncertainty of future, prices and yields; and (3) the existence of severe capital limitations. It is, thus, quite obvious that the resource allocation in agriculture may not be perfect. Many factors work against perfect allocation of resources in Indian Agriculture. Exercise 7.1 Q1. Write a short note on Input Output Relation and Resource Allocation? Q2. How will the Producer select the Optimum Levels of the Input and Output? Q3. How will the entrepreneur decide about the Optimum Combination of Products? 7.9    SUMMARY The technical conditions of production and the structure and relationship of market prices are the Two most important of the several forces which determine how resources of a farm are used or should be used. Conditions of production refer to the nature of the relationship between resources and products. The quantity of a single resource or of all resources to be used by a farm depends as much on the nature of the production function as on the level and structure of prices. The other relationship in farm production involves the allocation of given resources between competing enterprises. It is termed the product-product relationship. It again refers to the choice between two or more alternatives. In this chapter we have discussed there aspect in detail. 7.10    GLOSSARY •    Joint product:   One of two or more products (goods and/or services) that are produced by a single production process, such as milking a cow to produce both milk and cream. Most trade theories assume away joint products for simplicity. •    Complementary Products: Two products are called complementary if a transfer of resources to one product (Y2) and an increase its production are accompanied by an increase in the production of the other product (Y2). •    Supplementary Products:  Two products are said to be supplementary, if for a given level of resources the production of one can be increased without affecting the production of the other. •  Competitive Products: Two products are competitive if, with the given level of resources, an increase in the production of one results in the reduced level of production of the other. •  Marginal rate of substitution: In a production function or a utility function, the ratio at which one argument (input) substitutes for another along an iso-quant or indifference curve 7.11    ANSWERS TO SELF CHECK EXERCISES Exercise 7.1 Answer 1 : Refer to Section7.4. Answer 2: Refer to Section7.5. Answer 3: Refer to Section7.7. 7.12    SUGGESTED READINGS 1.  Heady,  E.O.  and J.F. Dillon (1961): Agricultural Production Functions, N.Y. Prentice Hall. 2.  Kalilon, A.S.  and Karam Singh (1980): “Economics of Farm Management” in India, Bombay, Allied Publishers. 3.  Upton,  Martin  (1976): Agricultural Production Economics and Resource use. 7.13    TERMINAL QUESTIONS Q1 . Explain the Allocative Efficiency of Resource Use in Indian Agriculture? Q2. Explain Technical Efficiency and economic Efficiency? UNIT–08RISK AND UNCERTAINTY IN AGRICULTURE STRUCTURE 8.0 Objectives 8.1    Introduction 8.2    Risk 8.3    Uncertainty 8.4    Farmer Defense against Risk and Uncertainty 8.5  Uncertainty Precautions 8.5.1     Flexibility 8.5.2      Diversification 8.5.3     Asset Management 8.5.4     Capital Rationing Uncertainty 8.6  Other Methods 8.6.1     Choice of reliable enterprises 8.6.2    Discounting for risk 8.6.3    Maintaining reserves 8.6.4    Contracting prices in advance 8.7  Summary 8.8  Glossary 8.9    Answers to Self Check Exercises 8.10    Suggested Readings 8.11    Terminal Questions 8.0 OBJECTIVES After going through this lesson you will be able to: •    Explain the Risk and Uncertainty •    Enlighten the Farmer Defense against Risk and Uncertainty •    Elucidate Uncertainty Precautions 8.1    INTRODUCTION Production relationships are not exact because the farmer does not have perfect control of all the environmental factors which influence crop and livestock yields. Hence, whilst some of the variation in yield may be due to differences in the combination of inputs used,' there is always a certain amount of variation due to uncontrolled factors. This residual variation may be viewed as chance variation. Therefore it is impossible to predict the outcome of any productive process exactly; there is always some chance variation and therefore some uncertainly about the precise outcome of a particular productive activity over a particular period. These risk and uncertainties are permanent phenomena in agriculture and a farmer is always faced with the problem of taking suitable action against these. To the extent the farmer succeeds in minimizing risk and uncertainty, he succeeds in maximizing his returns. Before we discuss the decision making under risk and uncertainty, it would be proper to define these two terms risk and uncertainty. 8.2    RISK Risk is defined as a situation which exists when the future can be predicted with a specified degree of probability. With the perfect knowledge situation it is possible to say definitely and positively that an event will happen; when a risk situation prevails, it can be said that the chances are, for instances 50-50 or 60-40 than an event will occur. With in the broad classification of risk, there are two sub-classes. The first is a priori, the second statistical. A priori probability prevails when sufficient information is known in advance about the general possibilities that the probability of a particular event occurring can be specified. For example, if a coin is tossed, it is known that it must come up either heads or tails. It is known that both have exactly the same opportunity of turning up. Therefore, on the basis of general principles, the probability of a particular event happening can be predicted. This is to be contrasted with statistical risk. When statistical risk occur the probability of future event can be stated on the basis of results of many previous observations. Probabilities are assigned to future events on the basis of recorded experiences as to what has happened under similar conditions. 8.3    UNCERTAINTY Uncertainty is faced by all entrepreneurs and profit is their reward for handling it successfully, as loss is the ‘penalty for future. Uncertainty should be distinguished from risk. There is a risk when a statistician can work out mathematical probability of the occurrence of an event Risk is something which is insurable (loss for fire, for example) which can be incorporated into the cost of a business, and which therefore docs not adversely affect decision making. Uncertainty is incalculable, characterizes situations where there may be broad range of outcomes, and does affect decision-making. Agriculture, it is argued faces a greater uncertainty than other businesses and fanners reaction to it can lead to inefficient production. Farmers face at least six different types of uncertainties, some of which are common to non - agricultural producers and-some peculiar to, or especially prevalent in, agriculture. First, technological uncertainty applies’ to nearly all economic activities. It is the uncertainty about new technique, new processes, new-types of product, or new machines which may render obsolete existing or planned investment in capital and labour. Secondly institutional uncertainty is also a common problem which derives from the effects on entrepreneurs of government actions such as changes in investment allowances, interest rates, regional aids, income and consumption taxes and foreign exchange policy. Clearly, the more the dependence of an industry on government the higher is the institutional uncertainty. Thus wholesale government intervention in agricultural prices, output, or incomes can increase this type of uncertainty. The third and fourth types of uncertainty, which relates to the prices of inputs and their availability, apply equally to farming and other activities-except for those farming enterprises, especially livestock, which are highly, dependent on other farming enterprises, particularly cereals, for one of their major inputs. The two remaining types of uncertainly are those which are commonly held to cause the distinctive instability of agriculture. 'They stem from the related fluctuations in yields and prices. All farm products are the result of biological processes which are notoriously difficult to control. Land, animals and crops can vary widely in character and quality; they are vulnerable to pests, parasites and diseases; and, above all, they are subject to the climate. It is common for the annual yield of same crop in the same place to vary by 25 per cent and variations of 50 per cent or more are not unknown. Plant breeders and agronomists have, however, made immense progress in reducing the yield variability of crops, particularly temperate ones. But yield variability remains quite high with tropical primary products due to extreme changes in climate and lesser application of science and management. Though attempts are made to reduce yield variability yet there remains large annual variation in the output of all agricultural products. Because of very low price elasticity of demand for most agricultural products, large price flucţuations will result from very small changes in output. Price fluctuations are also caused and aggravated by the shortrun price in elasticity of supply which results from the difficulty or in possibility of adjusting production quickly in response to changes in price. All agricultural production processes take a considerable time from a few months with some crops, to around several years with coffee and rubber. Adjustments to upward changed in prices are therefore, inevitably delayed. Adjustments to downward changes also tend to be slow because the variable costs of the farmers tend to be unusually small in relation to his fixed costs. A final point to be made oh instability is that it is not fluctuations in prices but the resulting income instability which is the cause of concern. 8.4    FARMER DEFENSE AGAINST RISK AND UNCERTAINTY The farm manager is faced with many situations that can be classified as either risk or uncertainty. He may not draw a clear line of distinction between them, yet by his reactions he reacts to risk differently than he does to uncertainty as these terms are outlined above. There are numerous situations in agriculture that may be properly classified as risk. If a possible unfortunate occurrence can be insured against, it can be classified risk. Various kinds of insurance are available. In such situations the farmer must decide whether he should pay to have the risk transferred to some other person or institution or whether he can afford to carry the risk himself. Not all insurance can be viewed in the same way, as it provides differing amounts of protection against unforeseen events. Insurance can be defined as the substitution of a certain small cost for the possibility of a large uncertain loss. Liability insurance usually protects one against rather large losses. It is possible to insure growing crops in various ways. Insurance from private agencies is usually limited to a particular crop risk, such as hail. Again the consequences of a loss must be evaluated when such insurance is considered. In areas where crops are uncertain and loss of a crop would be catastrophic to the farm business, insurance, although costly, may be’ a good investment. On the other hand, some production areas have stable yields and the crop risk is quite small. In such areas the magnitude of the loss is not likely to be great, nor is the possibility of its occurrence large. Therefore, the farmer may wish to assume his own risk. Certain risk situations like breakage of eggs, grain waste through spillage, and losses due to rodents cannot be covered by insurance. Because these cannot be insured against, the farmer must deal with them in one (or both) of two “ways: instituted control measure or lose revenue. In either case the costs involved are production costs. Another form of diverting risk is by the use of contracts. Contracting is quite old in agriculture. Land has long been rented on the basis of contract, with payment either in cash or in share of crops. When the fanner rents for cash he is more susceptible to a loss in case of unfavourable prices or yields than if he were renting on a share basis by the same taken he stands to gain more in case of favourable prices or yields. The use of commodity contracting is increasing. Prior to undertaking production, the farmer may sign a contract with a specified price. By doing he protects himself against extremely unfavourable price movements. On the other hand, he signs away any chance for a wind fall gain. Again two elements are important in making such decisions. First is the risk aversion of the decision maker and the other main factor is the asset position of the firm. All farmers view risk in different ways. Some may wish to assume the risk of a possible loss in order to retain the chance of a possible gain. Others are willing to forego the chance of a wind fall gain if they can be protected against unforeseen loss. Some businesses-are in a position to bear the losses in case unfavourable incidents take place; in other words, they can afford to take a chance. For some even the smallest unforeseen loss may mean disaster. The signing of contracts and the buying of insurance can also be looked upon as a part of the trend toward specialization. 8.5    UNCERTAINTY PRECAUTIONS 8.5.1    Flexibility: Flexibility may be defined broadly as planning in such a way that new information may be taken into account as it becomes available. This implies being prepared to make now decisions from day to day in the light of changing conditions, rather than preparing a comprehensive plan in advance and sticking to if rigidly.' Generally, a flexible farm system is one which “can be changed more quickly and at a lower cost than an inflexible system. Flexibility, as Heady says, is the avoidance of rigid: production methods”. And in the case of a multi-product enterprise, it also means avoidance of a rigid production pattern. Flexibility may be maintained by choice of enterprises with a quick turnover, by using general purpose buildings and machines rather than specialized ones, and by avoiding fixed costs. It is easier and cheaper to expand or contract an enterprise such as pig or poultry keeping with a relatively short production period than it is to vary the scale of a pedigreecattle breeding enterprise, provided that specialized buildings and equipment are avoided. Likewise annual crops are likely to provide greater flexibility than perennial tree crops. Also, a farm system is kept flexible by using temporary hired labour rather than regular workers, by using labour intensive methods rather than specialized machinery, and by hiring on contract rather than owning machines. However, this flexibility is likely to have a cost in terms of certain amount of profit foregone on average. 8.5.2    Diversification Diversification has also been advocated as a precaution against uncertainty. The theory of this is that prices and yields for different enterprises do not fluctuate together and that a combination of enterprises will tend to stabilize income over what it would be if the enterprises were produced separately. This rule is widely recommenced as a means of reducing income variability, but as we have seen it may increase risk. Thus it is only to be recommended as a risk precaution when it is known that returns from the enterprise involved are not positively related. 8.5.3    Asset Management The existence of, uncertainty in agricultural production has a profound effect on the management of assets in farming. The farmers may hold a higher percentage of his assets in a liquid form than if the future were more certain. Liquidity may be defined as that characteristic of an asset ‘that permits it to be converted easily into cash. If necessary liquid assets can be converted into, cash and be used either for living or production expenses. 8.5.4    Capital Rationing Uncertainty Capital Rationing Uncertainty may also affect the use and quantity of capital in farming. A lender will tend to restrict the amount of money loaned in proportion to the amount of uncertainty associated with a venture. Even if a farmer has his own capital, he may restrict the use of capital depending upon the degree of uncertainty which exists. The farmer may wish to restrict the use of capital short of the point where expected marginal cost is equal to anticipated marginal returns. This is called internal capital rationing. It differs from external capital rationing which means that financial, institutions and private money lenders are reluctant to advance loans to the farmers on account of uncertainty. Assume it will take 90 kg of fertilizers to equate marginal costs and returns on the basis of experimental results and current prices, but it is expected that prices may decline 25 per cent. Under such circumstances, only 60kg of fertilizer would be profitable. The farmer as per his logic may apply 60 kg whereas he knows full well that under average conditions 90 kg would a more profitable application. Yet he is willing to sacrifice the possible gain to protect himself on the event either unfavourable prices or yields should occur. To manage a farm business profitably in the face of uncertainty requires decision making of a very high order. 8.6    OTHER METHODS Besides the above measures, Upton refers to a few other measures also which a farmer can adopt to minimize the impact of uncertainty. 8.6.1    Choice of reliable enterprises Farmers, though not knowing full well the possible outcomes and probabilities of different enterprises are not - aware of the fact that certain enterprises/ventures are more reliable than others. The relative yield variation of intensive livestock, such as pig and poultry, is generally thought to be less than that of sheep and beef cattle. Again cereal yield is generally less volatile than the yield from root crops. Similarly is the case with price variability. The prices of some products are more stable than those of others. Activities with variable outcomes assure a higher long— run average income. Risk avoiders hardly experiment with innovations. 8.6.2    Discounting for risk This implies producing less than the economic optimum level of output on average in order to reduce losses in unfavourable. 8.6.3    Maintaining reserves This may be viewed as another way of maintaining flexibility. Thus many farmers maintain a larger complement of machinery and equipment and labour force larger than what is required to cope up with the situation of uncertainty. Maintenance of extra food and cash may also prove beneficial in the adverse times. 8.6.4    Contracting prices in advance Price uncertainty may be reduced by making forward contracts for the purchase of inputs and sale of produce. However, where the period of contract is pretty long say a year, in such cases concerned organizations generally keep the right to re-negotiate the terms as per the need of the hour and hence variation and uncertainty cannot be eliminated entirely. Though wages and rents are contractually fixed yet landlords and workers can always ask for a periodic hike in rent and wage. Certain products are produced entirely under contractual agreement, particularly in the poultry industry. Fanners provide housing, labour and some management while the outside party, usually a livestock feed company, supplies chicks and feed and pays the farmer an agreed price for the product. The development of such a system is known as vertical integration. By this agreement the farmer not only can mitigate the inherent price and income uncertainties of the traditional marketing system but also establishes useful links with manufacturing firms and input suppliers. Exercise 8.1 Q1 . What is Risk and Uncertainty? Q2. What are the Uncertainty Precautions? Q3. What are the other methods which a farmer can adopt to minimize the impact of uncertainty? 8.7    SUMMARY Production relationships are not exact because the farmer does not have perfect control of all the environmental factors which influence crop and livestock yields. Hence, whilst some of the variation in yield may be due to differences in the combination of inputs used,' there is always a certain amount of variation due to uncontrolled factors. This residual variation may be viewed as chance variation. Therefore it is impossible to predict the outcome of any productive process exactly; there is always some chance variation and therefore some uncertainly about the precise outcome of a particular productive activity over a particular period. These risk and uncertainties are permanent phenomena in agriculture and a farmer is always faced with the problem of taking suitable action against these. To the extent the farmer succeeds in minimizing risk and uncertainty, he succeeds in maximizing his returns. In this chapter we have covered the concept of risk and uncertainty. We also studied what is the farmer’s or producer’s defense against this uncertainty and risk. We have also gone through the measures which a farmer can adopt to minimize the impact of uncertainty. 8.8    GLOSSARY •    Risk: Risk is defined as a situation which exists when the future can be predicted with a specified degree of probability. With the perfect knowledge situation it is possible to say definitely and positively that an event will happen; when a risk situation prevails, it can be said that the chances are, for instances 50-50 or 60-40 than an event will occur. •    Uncertainty: Uncertainty is faced by all entrepreneurs and profit is their reward for handling it successfully, as loss is the ‘penalty for future. Uncertainty is incalculable, characterizes situations where there may be broad range of outcomes, and does affect decisionmaking. Agriculture, it is argued faces a greater uncertainty than other businesses and fanners reaction to it can lead to inefficient production. •    Flexibility may be defined broadly as planning in such a way that new information may be taken into account as it becomes available. This implies being prepared to make now decisions from day to day in the light of changing conditions, rather than preparing a comprehensive plan in advance and sticking to if rigidly.' Generally, a flexible farm system is one which “can be changed more quickly and at a lower cost than an inflexible system. •    Liquidity may be defined as that characteristic of an asset ‘that permits it to be converted easily into cash. If necessary liquid assets can be converted into,  cash and be used either for living or production expenses. 8.9    ANSWERS TO SELF CHECK EXERCISES Exercise 8.1 Answer 1 . Refer to Section 8.2 and8.3. Answer 2. Refer to Section8.5. Answer 3. Refer to Section8.6. 8.10    SUGGESTED READINGS 1.    Bishop, C.E. Taussaint, W.D. (1958): Introduction to Agricultural Economics Analysis: Wiley International Edition. 2.    Castle, E.N. Decker, M.H; & Smith, F.J. (1972): Farm Business Management The Macmillan company N.Y. 8.11    TERMINAL QUESTIONS Q1 . What is Farmer Defense against Risk and Uncertainty? Q2. Write Short notes on: (i)    Choice of reliable enterprises (ii)   Discounting for risk (iii)  Asset Management (iv)  Capital Rationing Uncertainty UNIT-09MODELS OF AGRICULTURE DEVELOPMENT-I STRUCTURE 9.0 Objectives 9.1    Introduction 9.2    Definition of Traditional agriculture according to Schultz: Some misconceptions 9.3    Traditional Agriculture According To Schultz 9.3.1    Main Characteristics of traditional agriculture as defined by Schultz 9.3.2    Assumption for the state of perfect allocation of resources 9.3.3    The Poor but Efficient hypothesis: 9.3.4    Implication of the poor but efficient hypothesis: 9.3.5    Tests of the Hypothesis 9.3.6    Critical review of Schultz views about perfect allocation of resources in traditional agriculture 9.4    The Doctrine of Zero Value Labour 9.4.1    Critical review of Schultz’s views about disguised unemployment in traditional agriculture 9.5    Schultz’s Suggestions for Transforming Traditional Agriculture 9.6    The Process of Transformation 9.6.1    Supply of new 'factors: 9.6.2    Research and Development of new factors by the Suppliers 9.6.3    The Distribution of New Inputs: 9.7    Demands for New Factors 9.7.1    The Prospective Yield: 9.7.2    Supply Price of the new input 9.8    Critical Review of Schultzian Thesis 9.9    Boserup’s Theory of Agricultural Development 9.9.1    Stages of Agricultural Development 9.9.2    Critical Appraisal 9.10    Summary 9.11    Glossary 9.12    Answers to self-Check Exercises 9.13    Suggested Reading 9.14    Terminal Questions 9.0 OBJECTIVES After going through this lesson you will be able to: •    Explain the Traditional Agriculture According To Schultz. •    Enlighten The Doctrine of Zero Value Labour •    Give Suggestions for Transforming Traditional Agriculture •    Explicate The Process of Transformation •    Boserup’s Theory of Agricultural Development 9.1    INTRODUCTION We have seen in an earlier lesson that agricultural development is a condition precedent for the overall development of an economy. The more fundamental question is how to develop agriculture itself in the first instance. Many economists have addressed themselves to this question. T. W. Schultz is one such economist. His well-known book ‘Transforming Traditional Agriculture, appeared in 1964. In this book he suggests various steps for changing a traditional agriculture into a modern agriculture. Though his definition of traditional agriculture as we shall see, covers even an agriculture which uses an advanced technology. This book is basically meant for transforming agriculture which is backward and has a very low yield when compared with the yield in modern agriculture. 9.2   DEFINITION   OF TRADITIONAL AGRICULTUREACCORDING TO SCHULTZ: SOME MISCONCEPTIONS: Before giving his definition of traditional agriculture, Schultz tries to dispel some wrong impressions about what a traditional agriculture implies. a)    Traditional agriculture has nothing to do with the traditions of a society. According to Schultz agriculture can become traditional in any country, irrespective of the customs and conventions which its people have generally practiced. For example, it is not necessary that only a conservative, superstitious and a whimsical society can have a traditional agriculture. Even a forward looking society can find its agriculture to be traditional in nature. Schultz feels that most of the factors that influence' production i.e. Thrift, attitude to work, industriousness etc, are not affected by the cultural traits of A society. These are Infact economic variables. People do not save for investment simply because the method of production does not give a high return. Again people do not work much because the return to labour is rather low. Accumulation of more capital or use of more labour are the governed by economic factors and not by the cultural factor. b)    Traditional agriculture  has nothing  to do with the institutional arrangement in a country A country With - any type of institutional arrangements can find its agriculture being traditional. For instance agriculture in a country can become traditional whether it has large farms or small farms, though generally people feel that traditional agriculture is associated with small farm Japan’s agriculture is not traditional even if the farm size is very small. Similarly, traditional agriculture can be found both in ‘countries with a high degree of owner cultivation or with a high degree of tenancy. For example, Holland is a country where tenant cultivation predominates. However, its agriculture's not traditional. c)    Schultz further points out that the technical attributes, of the factors of production in an agriculture do not determine the character of agriculture in a country i.e. whether it is traditional in character or not. Generally it is felt fiat if the factors of production are highly productive, its agriculture can be called by a modern agriculture and if the factors of production have low technical efficiency, it is called a traditional agriculture, Schultz does not agree with this assertion. For him, traditional agriculture has some economic feature and if these features appear in agriculture even with technically efficient factors it will become traditional in character. According to him under certain circumstances, even American Agriculture which at present, is considered to be the most advanced agriculture can become, traditional. 9.3    TRADITIONAL AGRICULTURE ACCORDING TO SCHULTZ: According to Shultz traditional agricultural is an economic concept. It implies a short of equilibrium. When agriculture of a country reaches such equilibrium, it will become a traditional agriculture and according to Schultz, as we have already pointed out, this equilibrium can be reached irrespective of the cultural attributes of the society, its institutional arrangements, or the technical efficiency of its factors. According to Schultz, the critical conditions underlying this type of equilibrium, either historically or in the future are as follow: 1.    The state of arts remains constant 2.    The state of preferences and motives for holding and acquiring sources of income remains constant and 3.    both of these states remain constant long enough for marginal preference and motives for acquiring agricultural factors as sources of income to arrive at an equilibrium with the marginal productivity of these, sources viewed as an investment in permanent income streams and with net savings approaching zero. The definition needs some elaboration. Schultz is of the opinion that when technology in agriculture remains unchanged for a longtime and when people using various inputs under such a technology have fully known the pros and cons of the use Of these inputs and have therefore finally decided their preference for various inputs, a time may arrive when in general the marginal productivities of these inputs and their costs have become equal to each other. This iş equilibrium. In such a case, further investment in these ''inputs will slop. Level of there use will no longer change, Further savings (except to keep these inputs at the equilibrium level) was no longer made. This is a state when agriculture will become traditional in character. Agriculture will no longer be progressive. It will be stagnant and will remain so, so long is the art of cultivation and preference to hold various factors of production remain unchanged. It may be noted that Schultz’s definition is unconventional in the sense that according to it, even a very advanced agriculture can become traditional.  It is not  like Mellor’s definition  which considers  only a backward and labour intensive agriculture using crude from of capital, as traditional  agriculture. Mellor‘s definition is  more  Pragmatic  and  is historically sound. 9.3.1    Main Characteristics of traditional agriculture as defined by Schultz 1.    Allocative Efficiency in Traditional Agriculture: It is generally felt that resources in a traditional agriculture are not optimally allocated. Heady had conducted a study on resource allocation for six classes of farmers in India and found that allocation of resources was not perfect. Schultz’s definition does not lead to such a conclusion. On the other hand, it leads one to conclude that resource allocation is perfect in a traditional agriculture. The argument runs as follows, Art of cultivation remains unchanged (for agriculture to become traditional) and so are the preferences and motives to hold various factors of production. When year after year farmer, under such circumstances, get the same return (under normal condition), they are bound to adjust their investment in various factors in such a way that the marginal productivity of each a factor is finely balanced with its price and this balance will stay so long as the art of cultivation etc. remains unchanged. As Schultz point - out, “There are comparatively little significant inefficiency in the allocation of factors of production in traditional agriculture.” 9.3.2    Assumption for the state of perfect allocation of resources: Schultz made certain assumptions for the equilibrium to prevail in traditional agriculture. These assumptions are as follows:— 1.    The first assumption is about the nature of factors of production. The factors have been used for a long time without any change. If the factors have been changing in their nature, obviously, their returns too will be changing and consequently, long run equilibrium cannot be achieved. (In fact agriculture cannot be considered as traditional if the nature of factors of production goes on changing). 2.    No Significant activity like construction of road or digging of a canal is taking place. Such activities will disturb the equilibrium temporarily. 3.    Events like war, partitions recruitment of labour in the army also disturb the equilibrium temporarily. These are the assumed to be absent. 4.    Relative prices of various factors as well as of agricultural products are assumed to be constant. 5.    As the state of arts is assumed to be unchanged, the change in the technology, taking place at any time is ruled out. 6.    There are no indivisibilities. 7.    There is a perfect knowledge about the returns to various factors. 9.3.3    The Poor but Efficient hypothesis: From the above implication about perfect allocation of recourses, as deduced from the definition of traditional agriculture Schultz moves on to the description of another hypothesis (based upon perfect allocation of resources) which, by now has become quite well known. It is known as the poor but efficient hypothesis, Schultz implies that people in a traditional agriculture are no doubt efficient so far as the allocation of resource is concerned but still they are poor. According to him, optimum allocation of resources fails to ensure a high income level for the farmers. This is because the returns from the resources themselves are quite low or using Schultz’s terminology, we can say that the cost OF income stream is rather high. This is the reasons we shall see later, why Schultz suggests changes in the nature of factors of production in order to transform traditional agriculture. 9.3.4    Implication of the poor but efficient hypothesis: From the fact that the allocation of resources is perfect in traditional Agriculture Schultz deduced some important conclusions. These are follows: a)    There is no possibility of increasing agriculture production by reallocating the existing resources. The farmers have perfect knowledge about the returns from these resources and are already getting the maximum output from their use. As there is no wasteful utilization of these resources, no additional output is produced if these resources are reallocated. b)    Most factors is unemployed in traditional agriculture. The poor but efficient hypothesis also leads to the conclusion that no resources whether capital or labour, are unemployed involuntary, if any factor, say a labourer is without a job he is so only voluntarily. If such a factor demanded employment, it can offer itself in the market. The price of the factor will come down to such an extent that it will be finely absorbed in the production process. c)    The hypothesis leads to the conclusion that even in traditional agriculture, there is no dearth of efficient entrepreneurs. d)    The hypothesis also, implies that fanners in the traditional agriculture, too quite responsive to price changes. This is because perfect allocation of resources is not possible unless the producers are too sensitive to price changes. This conclusion is very important because generally it is held that farmers- in traditional agriculture are totally insulated from the effects of changes in market forces. 9.3.5    Tests of the Hypothesis: Schultz did not stop only at deducing the conclusion about resource allocation from his definition. He relied upon studies conducted by two social anthropologists to prove his point. The first study was that made by Soltax. He had made a study of a Guatemalan community and had found that resource allocation was perfect, in such a community. The other study was by David Hopper who found that resource allocation was perfect in a village, (Senapur) in India. At the same time, Schultz rejected the conclusion arrived at by Heady who studied the resource allocation by six classes of Indian farmers and had concluded that there were imperfections' in the resource allocation in these villages. Schultz rejected Heady’s conclusions with the plea that data used by him was unreliable. It may be noted here that Guatemalan and Indian agriculture are considered traditional by Schultz. 9.3.6    Critical review of Schultz views about perfect allocation of resources in traditional agriculture No doubt, Schultz had found supporters for his conclusion about resource allocation in traditional agriculture. John Lossin Buck anu Baner and Yamey, for example, have supported his conclusions. Still, his views have not .been accepted by many. The methodology used by David Hopper on whose conclusions Schultz relies has been criticized by Dunn and Now shirwani. Lip on- questions the assumption of profit maximization for studying resource allocation. On the empirical level, many economists like Desai, Kahlon, Johl and Soni have found that misallocation, of resources exists in Indian agriculture. As a matter of fact, Schultz’s conclusions are not based upon extensive studies. Decision, making for allocation of resources is a complicated process and it is influenced by a. multitude of factors. It is very difficult to find a situation in which these factors allow the resource to be used in an optimum manner. . Generally resources allocation is imperfect whether agriculture is traditional or nontraditional in character. 9.4    THE DOCTRINE OF ZERO VALUE LABOUR: Yet another conclusion can be derived from the definition of traditional agriculture as given by Schultz. It is that in a traditional agriculture, there is no disguised unemployment or what Schultz calls as zero value labour. We have already pointed out that in traditional agriculture, as per Schultz’s views, no factor of production is involuntarily unemployed. Schultz specifically uses this implication of Poor but efficient hypothesis to emphasis that there is no unit of labour that is unemployed in traditional agriculture either openly or in a disguised manner. A labour is disguisedly unemployed when its marginal productivity is zero. As Schultz takes the plea that every worker, who is willing to work gets wages for his work, his marginal productivity can never be equal to zero or there is no zero value labour in traditional agriculture. This is a very important conclusion because economists like Nurkse have pointed out that there is disguised unemployment in the agriculture sector and that the disguisedly unemployed labour can be used for capital formation in under developed countries. Schultz tries to negate this assumption of Nurkse and other economists. In the first instance, he describes the reasons which have led- some economists to believe that disguised unemployment exists in a traditional agriculture. He is of the view that basically experts from the western countries have unnecessarily created this bogey of disguised unemployment. The visitors from the West found farmers wasting their time and this led them to profound the concept of disguised unemployment in agriculture. Another group put forth the view that during Great Depression while there was a fall ‘in demand, and-there was unemployment. They opined that there should be unemployment everywhere. As in providently agricultural economies no such open unemployment appeared. They declared that unemployment must be disguised. Schultz however points out that the interpretation is wrong. No farms were closed down while factories in the west stopped working. As farms continued to work, question of unemployment on these farms did not arise. Further, the experts in the western countries had found that there was a surplus labour in the agricultural sector in their own countries which needed to be transferred to the industrial sector. They presumed that surplus labour was bound to exist even in backward countries and thus they concluded about the existence of disguised unemployment in such countries (It may be noted here that need for transfer of labour from the agricultural sector to the industrial sector in developed countries is not, in fact, due to disguised unemployment. It is because of the fact per capita income of the labour in the agricultural sector in less man the per capita income of the labour in the industrial sector.) So, Schultz in first instance, points out that due to a wrong interpretation of facts, it came to be held that there is disguised unemployment in traditional agriculture. Schultz also refers to a theoretical arguments advanced in favour of the existence of disguised unemployment in agriculture. It is that factors of production in agriculture have a limited technical substitutability and they become complementary after a point. In such a situation if one factor, i.e. capital is in. short supply, the other factor i.e. labour cannot be employed. This argument was advanced by Eckaus. Schultz does not agree with this contention and asserts that even when capital is limited in supply, additional labour always brings forth a positive (above zero) returns. He quote Viner in support of his view. After trying to prove that assertions about the existence of disguised unemployment in traditional agriculture are based upon some wrong interpretation of facts and also on wrong theoretical grounds, he goes on to prove that there is no disguisedly unemployed labour in traditional agriculture and that each labourer has a positive marginal productivity (of course, it may not be very high.) He gives two examples of construction work in South American countries when labour was withdrawn from the agricultural sector for this purpose. In both these cases, agricultural production fell down. This, according to Schultz, showed that marginal productivity of labour was not zero. Schultz also gives an example from India to prove his point. In India, an epidemic called Influenza appeared during 1917-19 and it wiped out about 1/6 of the total population of the country. In 1919, according to Schultz agricultural production fell. This again showed, according to him, that labour makes a positive contribution of agriculture production. 9.4.1    Critical review of Schultz՚s views about disguised unemployment in traditional agriculture Schultz’s view about no zero value labour in traditional agriculture have been challenged both on theoretical as well as empirical groups. On the empirical plan, studies by Mazumdar, & Desai, by Mellor and Stevon and by Rosenstein Rodan have shown have that disguised unemployment exists in agriculture in the underdeveloped countries. Schultz’s conclusions about influenza and its effects on agricultural production have been challenged Sen has, for example, questioned the deletion of some states form being considered by Schultz to show a fall in agricultural production. He has .further questioned the logic of using area under cultivation as an index for agricultural production. He has further pointed out that natural calamities like Influenza affect farms of all types i.e. those using hired labour and those using only family labour. When hired workers of an epidemic, production of farms on which disguised unemployment exist falls. So Sen Feels that fall in production due to influenza should not be taken as a proof that disguised unemployment does not exist in traditional agriculture. In fact, influenza was such a terrible disease that it unsettled the whole nation for quite some times and there was every possibility that even labourers with positive marginal productivity failed to attend to the agricultural operations. Fall in production, due to influenza .vas thus a natural outcome. The fact that Influenza is not a good example to prove that disguised unemployment does not exist in traditional agriculture has again been brought to light by S. Mehra. According to her after the epidemic subsided in 1919, the agricultural production increased in the first half of the year as compared with the base year of 1917 while it was less in the 2nd half of 1919. If fall in production was due to loss of labour, it should have been so in the first half and not in the 2nd half of 1919. According toiler, fall in production was due to some other causes. Bhagwati and Chakravarti put forth another argument to show that agricultural production can fall even when, there is disguised unemployment, when some labour leaves the agricultural sector. They refer to a situation where both types of farms i.e those using hired labour and those using family labour exist side by side. Disguised unemployment exists on family farms only. Suppose from a farm with disguised' unemployment, a family member leaves. Agricultural production will not suffer. However, share of each of the remaining in.member will increase. This rise in the share will also prompt those members of such a family who are already working as hired laboured on some other farms to demand higher wages. Demand for higher wages on farms using hired labour will mean less employment on farms using such labour and therefore there will be a fall in production. Thus our overall conclusion is that disguised unemployment exists in traditional agriculture that Schultz is not correct in holding the contrary view. 9.5    SCHULTZ՚S SUGGESTIONS FOR TRANSFORMING TRADITIONAL AGRICULTURE There are three ways of increasing production. These are to (1) make use of unutilized resources (2) Optimally reallocate the resources so as to take the production on to the production frontier and (3) change the nature of factors namely replace all or some of the old factor by new ones with higher output-input ratios. Intentionally or otherwise, Schultz’s ruled out the adoption of first two methods meant for increasing agricultural production. For ‘instance, by his very definition of traditional agriculture, he has concluded that there is no factor of production lying unused in traditional agriculture. Land and labour and other capital assets are fully utilized in traditional agriculture. In the same way, he has concluded that resources in agriculture are always perfectly allocated. There is no misallocation of resources and therefore there is no possibility to increase production in a traditional agriculture, by further improving the resource allocation. So Schultz is left with only one way to increase production in a traditional agriculture i.e. by changing the nature of the factors of production. Before we discuss in detail, Schultz’s scheme of adoption of new factors of production it is necessary to discuss the approach to be followed for such an adoption. 9.6    MARKET APPROACH V/S COMMAND APPROACH: By market approach, Schultz, implies that no factor of production should be imposed on the farmers. The farmers should be left free to decide whether to use a particular factor of production or not. Let them see for themselves the profitability of a given factor and decide about its adoption. The adoption in other words should be guided fry the market forces. The only responsibility of the government in this case should be to ensure that there is an easy availability of the factor of production and there is a good publicity about it and that necessary skills for the use of new inputs are property developed. By command approach, Schultz means system on which the government supplies a new factor production to the farmers and that direct them to use it irrespective of its profitability. Schultz prefers market approach to command approach. He feels that if a factor of production is voluntarily adopted by the farmer, its adoption will be wide spread and with full enthusiasm. On the other hand forced adoption not only, in many cases, ignores the problems faced by the farmers at the local level, but also at times, saps the skills and enthusiasm of the farmer. Schultz feels that the situation in a command approach can be compared to an absentee land lordism where the land lord knows nothing about the problems and difficulties of the actual cultivators but insists upon good harvests. 9.6    THE PROCESS OF TRANSFORMATION In a market approach, ultimately the supply and demand for the factors of production will govern the actual use. So Schultz discusses in detail, the factors that influence the supply and demand for such factors. We may in the first instance discuss the problems laced in the supply of new factors and me suggestion that Schultz makes to overcome these problems. 9.6.1    Supply of new 'factors: According to Schultz, three important steps are involved in the supply of new factors, these are;' (1)    Research and Development of new factors. (2)    Distribution of inputs to the cultivators and (3)    Extension of new knowledge. These steps are described in the paragraphs next follow 9.6.2    Research and Development of new factors by the Suppliers Science and Technology, according to Schultz play a very important role in the transformation of traditional agriculture. As the art of cultivation in a traditional agriculture has been static for long time, it may not be possible to develop technologically superior factors or production from within the country. So what he suggests is that in the first instance, these factors may be imported from some foreign country and then this factor should be subjected to further scientific analysis so that it is finally adapted to the physical environments of the importing country. This will be the least costly method of developing a new factor of production. With regard to the provision of scientific facilities for research, development and adaptation of a new factor of production Schultz raises an important question. It is as to who should provide facilities for such a job. The Government or the private persons? According to Schultz a private person will hesitate to undertake this research work not only because it is costly but also because its results may appear after a long time and sometimes may even be totally disappointing. Secondly, the benefits of a successful research are not going to accrue solely to the private person. Other members of the community will also benefit from this research. This may make the private person hesitate to take up the research work. On the other hand, the concept of benefit or profit is totally different for the government. It is rather very broad when compared with that of a private individual. The Government feels benefited if any member of the society benefits from its actions. So, Schultz feels that so far as research and development of factors of production suitable for the agriculture of a country are concerned. It should invariably be undertaken by the Government, of the country concerned or by some non-profit making institution in the country. 9.6.3    The Distribution of New Inputs: After the new inputs have been developed and technology for their mass scale production has been perfected, a question arises: Who should produce and distribute these inputs Schultz himself answers this question. In the beginning, when the new inputs are still untested by the farmers, no private person will take the risk of producing and distributing these inputs. There is a cost of entry into the market and his may be quite high in the beginning. This cost consists of the following: (a) the cost of adaptation, though basically, the input has been adapted to the general condition of the country in the stale owned laboratories or in the laboratories rim, by the nonprofit making institution, still some modification in the nature of the inputs is required even at the local level. This will involve some expenditure, (b) cost of providing information to the users about the availability as well as about the nature of tie input. In a nontraditional agriculture where the level of literacy is generally high the print media like technical journal etc. can be used to inform the farmers about the new inputs. However, the print media cannot be very useful in an illiterate society. Here distributors will have to contact the farmers personally or in groups which may be beyond their capacity, (c) Other costs of entry e.g. Opposition of the vested interest. People so far supplying the traditional input are vehemently oppose to the introduction of new inputs. Some expenses will have to be incurred to overcome their opposition. Due to these difficulties faced by the private agencies in the beginning, Schultz, suggested that initially the job of production and distribution of new inputs should be carried on cither by the Government agencies like Food Foundation etc. After sometime when the demand for the new inputs has been generated and has stabilized, the last of distribution of new inputs can be passed on the private agencies, (d) Development of extension services. Availability of new input is not sufficient. Necessary skills for its use are also to be developed. This may be done through well developed extension services. Extension services are essential even when new agricultural practices are to be introduced. Here Schultz again feels that the cost of extension services is rather high and therefore, such services should be provided by the Government. Thus, on the whole, Schultz suggests that so far as the supply of new inputs is concerned, the Government should take over the jolt of research and development of the new inputs, of their production and distribution and of extension education with regard to them. However, at a later stage the government can offer to the private agencies, the task of production and distribution of new inputs. 9.7    DEMANDS FOR NEW FACTORS Supply of new factors is of no use if the farmers do not demand them. Schultz therefore analyses the factors which should he kept in view while trying to ensure that a demand is generated for the inputs. In the first instance, Schultz tries to dispel a few misconceptions about the attitude of the farmers in a traditional agriculture towards the new inputs. He points out that it is wrong to assume that a farmer in traditional agriculture is conservative and non-progressive and as such will refuse to adopt the new inputs. According to him, whether he is a farmer in traditional agriculture or a nontraditional one, he always goes by the economic motive. In this case, the economic motive is governed by profitability of the new inputs over a long period. If the new inputs profitable the farmer will accept it and substitute it for an old input. Profitability of a factor, according to Schultz depends upon two factors. These are (a) the prospective yield and (b) the supply price of the new input. We describe these two factors in the paragraphs that follow. 9.7.1    The Prospective Yield: Schultz uses this concept to bring the future yield of the input into the picture. The inputs are totally new and how their yield behaves in the future is uncertain. The farmers are ignorant about the fluctuations in its future yield, but somehow or other this factor is to be considered by the farmers while deciding to accept the new input. Schultz feels that if the present yield of the input is extremely high farmers are likely to accept the input, even if they discount the future yield at a high rate. 9.7.2    Supply Price of the new input: For estimating the profitability of the new inputs, the fanner has to consider other factor also. It is the supply price of the new input. The farmer will discount the yield from the inputs over its life span and then compare it with its supply price. If discounted value of the prospective yield is more than its supply price, the farmers will consider it profitable to accept the input. So Schultz suggests that whereas the prospective yield from the input should be quite high, its supply price should be quite low. He infect, suggests that in the initial stages, it may be desirable to subsidies the new inputs so that they appear profitable. In the same vein, he suggests that if the tenurial arrangements are good, acceptance of new inputs will be easy. For example, if a tenant shares the gross produce but bears all the costs himself, he will be more hesitant to accept the new input as compared with the situation when besides sharing the output. He also share the costs on the same grounds he advocates peasant proprietorship as an arrangements conducive to transformation of traditional agriculture. 9.7.3    Importance of acquired skills in transformation of agriculture Supply of new inputs is essential for transformation of agriculture. However, additional knowledge and skill is also needed to use them true, in some cases, special training may not be needed to use these inputs. However,, if the new inputs are technically, far superior to the old’ input, imparting of special knowledge to the farmers becomes very important. Schultz considers three methods which can be used for imparting such knowledge. These are (1) trial and error method (2) on the job training through demonstration, short-term courses etc. and (3) Schooling, Schultz but of these three methods commends the third method i.e. schooling, the maximum. According to him, the other two methods are slow and limited in effects. He feels that general education at the school level will equip the farmers with capabilities to handle all types of inputs involving technical intricacies. He considers this as an investment in human capital and quotes the examples of Israel and Japan to prove that schooling has contributed a lot to the increase in agriculture production in these countries. 9.8    CRITICAL REVIEW OF SCHULTZIAN THESIS: We have already critically examined the definition of traditional agriculture as given by Schultz and also its implications namely the poor but efficient hypothesis (perfect allocation of resources) and the nonexistence of disguised unemployment in a traditional agriculture. Some of his other assertions also suffer from infirmities. For example, his too much emphasis on market approach is not correct. In a situation of shortages, too much emphasis on freedom to buy and sell can lead to an allocation of resources which may not be optimum from the social point of view. Social interests are likely to be sacrificed in favour of private interests if a total market approach is followed. Further his suggestion that only use of modem inputs will transform the traditional agriculture is inaccurate. Traditional inputs 'like conservations of soil, irrigation etc. cannot be discarded in any agricultural economy. Further, Schultz has totally ignored the differences in factor endowment of different poor economies. These differences do affect the pace at which the new inputs can be used. Differences in the availability of infrastructure, in administrative efficiency in the degree of commercialization, in the extent of monetization etc. do matter so far as the pace of adoption of new inputs is concerned. However, despite these infirmities, one must accept his basic suggestion that ‘transformation of traditional agriculture cannot take place unless new factors of production with much improved output-input ratios are adopted. 10.9 BOSERUP՚S THEORY OF AGRICULTURALDEVELOPMENT Boserup’s analyses the problem of agricultural development in primitive communities from entirely new angle. According to her agricultural development is due to some compulsion. Population growth is here regarded as the exogenous variable which in its turn is a major factor determining agricultural development. Malthus and his followers, believed that the supply of food for the human race is inherently inelastic, and that this lack of elasticity is the main factor “governing the rate of population growth. They treated population growth as dependent variable, determined by preceding changes in agricultural productivity which, in their turn, is explained as the result of extraneous factors. Boserup has tried to show that this line of causation, where agricultural developments are caused by population trends rather than the other way round, is the dominant one, development generally. Malthusian theory of population says that if at any time food supply increases, population will increase and new equilibrium will be restored between population and food supply. If,’ on the other hand, the population is already beyond the means of subsistence, the population itself will come down to reach an equilibrium level through the positive, checks. Both the strands of Malthusian theory have been refuted by Boserup’s theory of agricultural development. Boserup refutes first part of the theory by saying that the low rates of population growth found in pre -industrial communities cannot be explained as the result of insufficient food supplies due to overpopulation. And tremendous increase in the rates of population growth after Second World War in underdeveloped countries occurred despite food shortages, and some room should be left for other factors in the explanation of demographic trends. Boserup maintains that whenever there is population pressure, the population does not go down. It rather leads to various technical changes which positively affect the increase changes' which positively affect the increase in food supply. Her main-thesis is that contrary to the prevailing view, primitive communities with a sustained population growth have a better chance of getting into a process of genuine economic development than primitive communities with stagnant or declining population. 9.9.1    Stages of Agricultural Development The intensity of land utilization differs throughout the world. In large regions of Africa and Latin America, and in some part of Asia, the system of land use is very extensive. The other extreme is found in Egypt and Japan, where the land use is intensive. Between these extremes are intermediate intensities of land “use. Boserup has given five types of land use, in order of increasing intensity. (1)    Forest-fallow cultivation Under this system of land use plots of land are cleared in the forests each year and sown or planted for ‘a year or two after which the land is left follow for a number of years sufficient for the forest to regain the land. (2)    Bush - fallow cultivation Under this system the fallow is much shorter, usually somewhere between six and ten years. When repeated burning of less matured forests take place,’ we find ourselves in the “Bush-fallow stage”. Many authors do not distinguish between forest and bush fallow system, but group thorn together under the label of long fallow cultivation or shifting cultivation. (3)    Short - fallow cultivation Changes in patterns of land utilization and in agricultural methods usually occur gradually over long periods, and same is most often true of demographic changes. Further growth of population and accordingly greater need for food grains pushes agriculture into the ‘short fallow’ stage. The society cannot wait for hushes to grow. The implements which were important during the ‘bush fallow could not kill grassroots and weeds. Need for a plough arises. This is called the- ‘short fallow’ stage the period of fallow lasting for a year or two. In such a short fallow period, nothing but wild grasses can invade, the fallow, before the cultivator returns to the same plot or field. The system could therefore also be described as grass fallow cultivation, but the term short fallow is to be preferred since under certain conditions land may lay fallow for some time without being invaded by anything but wild grasses. (4)    Annual Cropping This is usually not considered a fallow system, but may be classified as such, because the land is left uncultivated usually for several months, between the harvesting of one crop and the sowing of another crop. This is, in fact, a type of annual rotational system in which one or more of tile successive crops are sown, grass or other produced fodder. (5)    Multiple cropping This is the most intensive system of land use, since the same plot bears two or more successive crops every year. Under the pressure of increasing population, there has been a shift from more extensive to more intensive systems of land use in virtually every part of the underdeveloped regions. As the density of population in the area increases, the fertility of the soil can no longer be preserved by means of long fallow and it becomes necessary to introduce other systems which require a much larger agricultural labour force. Overall utilization of labour will therefore increase. From this Boserup further concludes that there will be no unemployment when population grows. By the gradual change from systems where each cultivated plot is matched by twenty similar plots under fallow to systems where no follow is necessary, the population within a given area can double several times without having to face either starvation or lack of employment opportunities in agriculture. According to the explanation offered here, population increase leads to the adoption of more intensive systems of agriculture in primitive communities and an increase of total agricultural output. On the one hand, the intensification of agriculture may compel cultivators and agricultural labourers to work harder and more regularly. This can produce changes in work habit§ which help .to raise overall productivity. On the other hand, the increasing population density facilitates the division of labour and the spread of communications and education. The important corollary of this is that primitive communities with sustained population growth have a better chance to get into a process of genuine economic development than primitive communities with stagnant or declining population, provided of course, that the necessary agricultural investments are undertaken. Boserup also advances another argument that a period of sustained population growth would first have the effect of lowering output per manhour also in agriculture. But in the long run the effect might be to raise labour productivity in other activities and eventually to raise output per man-hour also in agriculture. In a development pattern of this type, there is likely to be an intermediary stage where' labour productivity in agriculture is declining while that of other activities is increasing. This period is likely to be one of considerable political and social tension because people in rural areas, look for more remunerative and less arduous work in non form sector and large scale migration to urban areas takes place which result into tough completion in urban labour markets. The migration from the rural areas may reach such proportion that it precludes the necessary increase of food production in the villages, with the result that the urban population must bear the double burden of high food prices and lacking employment opportunities. The problem of rural migration has been tackled by various nations in different ways. The ensuing relative rise of food prices may provide the needed incentive for an intensification of agriculture and be followed by a rise, of rural money wages which helps to keep migration within bounds. 9.9.2    Critical Appraisal Boserup’s theory of agricultural development is not applicable to those economies where the urban industrial sector is well developed. Her theory expresses the hope that growing population can be adsorbed, because of the system of multiple cropping. But this is not the case with many developing countries. The prevalence of disguised unemployment in traditional agricultural economics of south Asia again points to the fact that agricultural development has failed to absorb growing population. The unfavourable effects of growing population are completely ignored. Exercise 9.1 Q1 . Give the Critical Review of Schultzian Thesis? Q2. What are the Main Characteristics of traditional agriculture as defined by Schultz? Q3. Explain the Stages of Agricultural Development as given by Boserup in his theory of Agricultural Development? 9.10    SUMMARY In this lesson we have examined how the traditional agricultural can be transformed. We examined Schultz’s views on traditional agriculture and Boserup’s theory of agriculture development this lesson. Traditional agriculture has nothing to do with the traditions of a society. According to Schultz agriculture can become traditional in any country, irrespective of the customs and conventions which its people have generally practiced. For example, it is not necessary that only a conservative, superstitious and a whimsical society can have a traditional agriculture. Even a forward looking society can find its agriculture to be traditional in nature. Schultz feels that most of the factors that influence' production i.e. Thrift, attitude to work, industriousness etc, are not affected by the cultural traits of A society. These are Infact economic variables. People do not save for investment simply because the method of production does not give a high return. Again people do not work much because the return to labour is rather low. Accumulation of more capital or use of more labour are the governed by economic factors and not by the cultural factor. Boserup’s analyses the problem of agricultural development in primitive communities from entirely new angle. According to her agricultural development is due to some compulsion. Population growth is here regarded as the exogenous variable which in its turn is a major factor determining agricultural development. Malthus and his followers, believed that the supply of food for the human race is inherently inelastic, and that this lack of elasticity is the main factor “governing the rate of population growth. They treated population growth as dependent variable, determined by preceding changes in agricultural productivity which, in their turn, is explained as the result of extraneous factors. Boserup has tried to show that this line of causation, where agricultural developments are caused by population trends rather than the other way round, is the dominant one, development generally. 9.11    GLOSSARY •    Forest-fallow cultivation: Under this system of land use plots of land are cleared in the forests each year and sown or planted for ‘a year or two after which the land is left follow for a number of years sufficient for the forest to regain the land. •    Bush - fallow cultivation: Under this system the fallow is much shorter, usually somewhere between six and ten years. When repeated burning of less matured forests take place,’ we find ourselves in the “Bush-fallow stage”. Many authors do not distinguish between forest and bush fallow system, but group thorn together under the label of long fallow cultivation or shifting cultivation. •    Short - fallow cultivation In such a short fallow period, nothing but wild grasses can invade, the fallow, before the cultivator returns to the same plot or field. The system could therefore also be described as grass fallow cultivation, but the term short fallow is to be preferred since under certain conditions land may lay fallow for some time without being invaded by anything but wild grasses. •    Annual Cropping: This is usually not considered a fallow system, but may be classified as such, because the land is left uncultivated usually for several months, between the harvesting of one crop and the sowing of another crop. This is, in fact, a type of annual rotational system in which one or more of tile successive crops are sown, grass or other produced fodder. •    Multiple cropping: This is the most intensive system of land use, since the same plot bears two or more successive crops every year. Under the pressure of increasing population, there has been a shift from more extensive to more intensive systems of land use in virtually every part of the underdeveloped regions. 9.12    ANSWERS TO SELF-CHECK EXERCISES Exercise 9.1 Answer 1 . Refer to section 9.8. Answer 2. Refer to section 9.3.1 . Answer 3. Refer to section 9.9. 1 . 9.13    SUGGESTED READING 1.    T.W. Schultz, (1964): Transforming Traditional agriculture, New Heaven, Yale University Press. 2.    R. N. Soni, (2006): Leading Issues in agricultural Economics Jalandhar, Shoban Lal Nagain Chander & Co. 3.    Easter Boserup, (1970): The Conditions of Agricultural Growth, George Alien and Unwin London. 9.14    TERMINAL QUESTIONS Q1 . Explain the Schultz’s Thesis of Agricultural Transformation? Q2. Critically examine the Boserup’s Theory of Agricultural Development? UNIT-10MODELS OF AGRICULTURE DEVELOPMENT-II STRUCTURE 10.0 Objectives 10.1Introduction 10.2    Mellor’s Theory of Agricultural Development 10.2.1    Traditional Agriculture 10.2.1.1    Law of diminishing returns to labour 10.2.1.2    Three Types Income levels 10.2.1.3    Equilibrium Level of labour use 10.2.1.4    Backward sloping supply curve in traditional agriculture 10.2.2    Phase II Technologically Dynamic Agriculture Low capital technology 10.2.2.1    Important features 10.2.3    Phase III - Technological Dynamic Agriculture- High Capital Technology 10.2.4    Critical evaluation 10.3    Lewis Model of Economics Development 10.3.1    Assumption of the model 10.3.2    The working of the model 10.3.3    Role of Bank Credit 10.3.4    Slowing of the Pace of expansion of the Capitalist Sector 10.3.5    Impact of the Open economy 10.3.6    Critical Review of the Model 10.4    Summary 10.5    Glossary 10.6    Answers to Self-check Exercises 10.7    Suggested Readings 10.8    Terminal Questions 10.0 OBJECTIVES Studying of this unit will enable you to: •    Explain the Different phases of Mellor’s Theory of Agricultural Development •    Give the Critical evaluation of the Mellor’s Theory of Agricultural Development •    Enlighten the Working of Lewis Model of Economics Development •    Present the Critical Review of the Lewis Model of Economics Development 10.1INTRODUCTION In an earlier lesson we have examined how the traditional agricultural can be transformed. We examined Schultz’s views in that lesson. However, Schultz was not the only economist who made suggestions about, development of agriculture. Mellor is another Economist who tried his hands at a theory of agricultural development. As we shall see, his focus in his theory of agricultural development is different from that of Schultz in two major respects. Firstly, he does make suggestion, like Schultz, for developing agriculture. However, suggestions that he makes are many and these are not confined only to the use of some new inputs. Secondly Mellor tries to study with the help of history, how a developing agriculture passes through various stages of development. In fact, according to some, this is the major • difference between Mellor’s theory of agricultural development and that put forth by Schultz. 10.2   MELLOR՚S   THEORY   OF   AGRICULTURALDEVELOPMENT The first part of Mellor’s theory is not uncommon ‘n this art, he emphasizes importance of agricultural development, in the overall development of the economy. He asserts that in the beginning all underdeveloped economies are predominantly agricultural in character. He tries to prove his point by quoting a large amount of statistics. And, he feels that for overall economic development, the resources must flow from the agricultural sector to the non-agricultural sector. Agriculture provides labour, capital and foreign exchange the expansion of the nonfarm sector Food for those engaged in the non-farm sector as well as the raw material too, will he provided lot the non-farm sector by the agricultural sector. But for all, the agricultural sector itself must be developed first of all. And this brings us to the 2nd part of Mellor’s theory for which he is generally known. From the point of development, Mellor divides agriculture to fall in one of the three phases. The phases are: (i)    Traditional Agriculture, (ii)   Technologically Dynamic-Agriculture Low capital Technology and (iii)   Technologically Dynamic Agriculture-High capital Technology. We describe below the main features of agriculture in each of these three phases. 10.2.1    Traditional Agriculture: Mellor’s definition of traditional agriculture is much different from that given by Schultz. He does not define agriculture in the: sense of’equilibrium. For him, traditional agriculture is a backward labour intensive agriculture which uses only crude, form, of capital. It is not simply a stagnant agriculture as is implied by Schultz’s definition. According to Mellor, farm organizations in traditional agriculture, though different in different countries because of difference in physical, economic and social factors have some common features also. For instance, most of the farms are cultivated by the farmers with their family labour. Even the capital is provided by the farmer from his own source. The farms are generally small in size and the work force per farm is higher on this farm when compared with that in high income countries. These features result in low productivity and low income in these farms. So' far as resource allocation on these farms is concerned Mellor follows Schultz. According to him resources arc optimally allocated on these farms. According to Mellor, land and Labour constitute the major inputs on these farms.' The capital is in a very prude form. It is direct embodiment of human labour and therefore, its productivity is quite low. 10.2.1.1    Law of diminishing returns to labour As land is limited and so is the capital, additional labour force is the only source of increasing income in such agriculture. However due to the application of law of diminishing returns to labour, per capita productivity and income falls as more and more labour is used to produce more output. Mellor does admit that in traditional agriculture, some nontraditional inputs like fertilizers have been used. But he points out that their use has not added significantly to the output mainly because other complementary inputs are not used along with the fertilizers. Mellor is of the view that there is much underemployment in traditional agriculture. But this need not be due to the existence of zero value labour. This is mainly because of uneven distribution of land in the society with traditional agriculture. Mellor feels that while on the small farms, under employment for disguised unemployment) may exist due to the existence of zero value labour, on larger farms, underemployment exists due to another reason. According to Mellor, the pattern of consumption in a traditional agricultural is rather rigid. As, on larger farms, income is likely to be more than what is needed to meet the requirements of a rigid consumption pattern, the amount, produced on such farms i.e. the amount1 of labour to be used is to be not to be disguised. For proving this point Mellor uses the following analytical tools. 1.    The Production Possibility Curve. For Mellor, this curve shows the relationship between total output of a given farm and the amount of labour used to produce that output. In other words, It is total productivity curve  in value terms with labour as  the independent variable. The total output in ‘the curve, however, is not shown purely in terms of the value of actual physical agricultural output. It is rather in terms of the value of combination of agricultural output and the non-agricultural goods and services that are exchanged for agricultural goods at each level of labour use. As the law of diminishing returns starts applying to agricultural product from the very beginning this curve progressively becomes flat as the amount Of labour use increases along x-axis. Ultimately, the curve becomes parallel to X axis a point where the marginal productivity of labour becomes equal to zero. This curvature of the production possibility curve is valid for farms of all sizes. The only difference will be that the production possibility curve will be higher for larger farm than for the smaller farms though it will start from the origin in each case. In diagram I curves A to G are production possibility curves. All of then start from the origin C in the direction of CO. Axis CO shows man-time at C, it is presumed that zero work is put in while leisure availed of is OC. At O, all man-time has been used and mere is no leisure left. 2.    Iso-Utility Curve: The other tool that Mellor uses to show that labour is underemployed on larger farms is the iso-utility curve. It is just like an indifference curve (with O as the origin) a curve that shows at each point, the same amount of satisfaction from two commodities, and one the goods and services and other the leisure (opposite to work as measured from e). If a farmer wants more of goods and services, he will have to have so less of leisure, i.e. put in so much more work that he gets the same amount of satisfaction. A curve showing all such combinations of goods and services, on the one hand and leisure on the other which give him the same satisfaction is called Iso-utility curve. The rigid consumption pattern of the farmers affect the shape of the iso-utility curve as drawn with O as the origin. As each dose of additional goods and services has little utility due to rigid consumption pattern, it will progressively exchange for a smaller amount of leisure. In other words each unit of It leisure added (or work put it)' will be progressively exchanged with larger dose of goods and services. The iso-utility curve will thus be convex to O from which leisure is measured in the direction of Cc. the marginal rate of substitution between the two commodities falling as is shown in diagram 1 (It may be noted that we can also say that the iso-utility curve has been drawn with C as the origin in diagram 1. In that case of course we shall consider work put in and not the leisure as the other commodity on better say, the discommodity in the combination). 3.    Iso Utility Map: Just as there is n set of indifference curves, there is also a set of iso utility curves, each higher curve indicating a higher level of satisfaction as compared with the one below it. If all such curves are drawn use get what is called, an iso-utility map. Curves T to Z in diagram 1 show a part of the Iso-utility map. This map is considered to be same for each farmer. 10.2.1.2    Three Types Income levels Before we follow Mellor to find out the point of equilibrium of labour use on large farms, we may refer to the three types of incomes levels as distinguished by Mellor. These are (a) level which ensures only the minimum food, clothing shelter and other essentials for maintaining human life OYo in the diagram shows this level, (b) the culturally defined subsistence level. OY indicates this level in the diagram. According to Mellor, in a traditional agriculture, OY should indicate the maximum level of income which a farmer can aspire for. Income level beyond O Y is deemed to be a nontraditional agriculture. It is a level which indicates changing standard of living found in dynamic, non-traditional agricultural societies. 10.2.1.3    Equilibrium Level of labour use According to Mellor equilibrium level of labour use on such small farms ensures income level only up to Oyo will be indicated by the point where marginal productivity of labour becomes equal to zero. This is because all efforts should be made by the farmers to get the maximum output from land. Between OYc and OY, the equilibrium level of labour use will be determined at the point where the satisfaction from output produced is the maximum. This will be obviously a point1 where the 'given production possibility of a farm is just tangent to one of the iso-utility curves. The shape of the iso-utility curves and the production possibility curves are such that according to Mellor, the equilibrium point will always be to the right of the point where the marginal productivity of labour is equal to zero. In other words, on such farms, there will be underemployment of labour even when the marginal productivity of labour is positive and is more than zero. The above diagram, as given by Mellor, clearly shows that as the production possibility curve moves upwards its tangency point with an isoutility curve move towards the right at least up-to the level of income defined as culturally determined subsistence level the income level relevant for traditional agriculture. In the diagram production possibility curves A&B pertain to subsistence or below subsistence farm. It is only here that labour will be used up to a point where its marginal productivity is equal to zero. From the above analysis, Mellor further concludes that income in traditional agriculture can be increased if move labour is used on the farms. For this he suggests redistribution of land and taxation on agricultural incomes as the methods to promote the use more labour on the larger farms. 10.2.1.4    Backward sloping supply curve in traditional agriculture: Mellor is of the view that supply curve for agriculture production in traditional agriculture is backward sloping. His argument is as follows: when prices of agricultural products are raised, two things happen. On the one hand, there is a temptation to produce more, i.e. One likes to substitute labour for leisure. This is what he calls positive substitution effect of rise in prices of agriculture production on their land, the pattern consumption in, a tradition society is tradition bound is rigid. Now when the prices rise, income, of the farmers rises. But the consumption, pattern is rigid. So there is a temptation to produce less by using less labour in production. Thus is negative income effect of rise in prices of agricultural products. According to Mellor, in a traditional agriculture, negative income effect is stronger than the positive substitution effect, so far as the labour use & therefore output is concerned. The supply therefore falls when prices of agriculture products increase. In the same way Mellor feels that whether zero value labour exists in traditional agriculture or not, withdrawal of labour from the agricultural sector will result in the fall in agriculture output. This is because withdrawal of labour will give a higher per capital income to the people who are still left in the agricultural sector. As their income rises, the phenomenon of back ward loping supply curve relevant for the traditional agriculture will apply and the total agricultural output will fall. Mellor is of the view that so long as agriculture is traditional in character it cannot help the non-farm sector through flow of funds. Capital formation in traditional agriculture is very low. It must be taken out of its traditional rut if it is to help in the development of them on-farm sector. And it cannot move out of the traditional rut by itself. For this, the Government has to devise a policy aimed at the “complex but potential productive process of technological change”. 10.2.2    Phase II Technologically Dynamic Agriculture Low capital technology According to Mellor, only when agriculture moves into this phase, from the traditional phase that it can provide resources to the non-farm sector to grow. This phase involves the use of new inputs with high marginal productivity. The new inputs do not involve the use of too much of capital, and are complementary rather than competitive with labour. The traditional inputs are also used in this phase. These inputs increase the productivity per acre. Fertilizers, new seeds, power are some of these inputs. 10.2.2.1    Important features: 1.    Agriculture still occupies the most important position in the economy in terms of income generation 2.    Demand for agricultural products continues  to  grow due to increasing population 3.    Size of the farms continues to be small due to slow growth of the non-farm sector 4.    Agriculture does not use machinery due to availability of cheap labour. Mellor feels that the following steps are necessary, if the traditional agriculture has to move into the 2nd phase of development and also if the second phase is to be all embracive. 1.    Institutional changes  for creating  necessary incentives  for development. Mellor is firmly of the view that institutional changes like land reforms are  necessary for giving incentives to  the cultivators to produce more. Technological changes will follow only the institutional reforms. 2.    Encouragement of research. Mellor emphasizes scientific research at regional level. Sometimes, the research findings prove ineffective because these are not based upon regional variations. 3.    Supply of new and improved physical inputs. This is one of the most important measures that Mellor suggests for pushing a traditional agriculture into the 2nd phase of development. These inputs include new crop varieties, improved breeds of livestock, inorganic fertilizers, insecticides etc. Organizations for their proper distribution need to be set up. Mellor feels that some of these inputs may have to be imported from outside as their production in the country itself may be rather costly. 4.    Infrastructure necessary for the development and production of these inputs is to be developed. Efforts have to be made to make them acceptable to the fanners. 5.    Setting up of institutions to services agricultural production. There are many supporting services which have to be developed if the agricultural production proper is to increase. The institution includes those distributing modem inputs, those facilitating marketing of agricultural products, those engaged in processing agriculture crops. 6.    Development of communication system to help farmers make choices. Extension, services have to be developed to enable farmer make choices out of various alternative inputs and practices which go on appearing in a dynamic agriculture. With regard to all these steps Mellor points out that, no doubt, in the beginning large return technical innovations may be adopted even when some of these steps are not taken, however, if the 2nd phase of agricultural development is to be wide spread, all those services are to be provided in a package, He further points out that all these steps have to be taken by the Government itself. Private individual are not in position to provide this package to the farmers. In this regards, he further points out that regional diagnostic studies be conducted to ensure suitability of the package. Mellor also emphasizes the development of a broad range of educational institutions in order to ensure that the capacity of the farmer to grasp the new technicalities is increased. Two important points may be noted in Mellor’s steps for pushing a traditional agriculture into the 2nd phase. The first is in consumption to a suggestion made by Schultz. It is that Mellor is not much against command approach. He expects much from the Government to push traditional agriculture into a non- traditional phase. Secondly, in this phase, the inputs are not highly capital using. The inputs suggested to be used are low capital intensive and are complementary to labour. There is no displacement of labour. 10.2.3 Phase III - Technological Dynamic Agriculture- High Capital Technology Mellor has not discussed this phase in detail as he was mainly interested, like Schultz in transformation of a backward agriculture. However, he points out that when agriculture gets going in the 2nd phase, it will provide funds for the non-farm sector to develop. After some time both' the sector start developing with mutual help and agricultural will automatically enter the Third phase of development. Here heavy machinery will be used in agriculture; labour will be available for absorption in the developing non-farm sector. The heavy machinery will be developed in the expanding non-farm sector. Size of the farm will increase due to the transfer of tax from the farm sector to the non-faun sector High level of investment in machinery in agriculture becomes possible because of two factors: (1)    Capital formation in the developed agricultural sector grows further and (2)    The developed non-farm sector begins to use its own savings for investment and therefore does not need any capital from the agricultural sector. One point may be noted with regard to all these three phases of development. Mellor is of the view that the three phases should be followed in the sequence, he has given. This will ensure an optimum use of resources from the long term point of view. Historically too, this pattern of development is more correct. Only the United States entered the third phase first and the 2nd phase, later. This is because United States, agricultural machinery was developed earlier than the fertilizers were developed. However, as the present situations when both machinery and fertilizers are available the world over, it is desirable that the traditional agriculture of a country enters the 2nd phase and third phases of development in the order. 10.2.4 Critical evaluation Mellor has presented a theory of agriculture development which is more exhaustive and historically more sound than that given by Schultz. No doubt, in some respects, he agrees with Schultz e.g. in case of perfect allocation of resources in a traditional agriculture. He also agrees with Schultz that if labour is withdrawn from the agriculture sector, production will fall. Of course, he does accept, unlike Schultz that no zero value labour exists on small farms. His views about command approach are balanced. He assigns balanced positions both to the Government as well as to the farmers in taking various decisions. His definition of traditional agriculture is more pragmatic and is also historically sound. His analysis of labour use in different phases of development is quite logical. Labour is not displaced at all till the 2nd phase is over. This is what should be when the non-farm sector is not developed. His sequence of the development phases is also historically correct. 10.3 LEWIS MODEL OF ECONOMICS DEVELOPMENT We have studied Schultz’s theory of transformation of traditional agriculture and also Mellor’s theory of agriculture development. These theories concerned the development of the agricultural sector proper. Lewis’s model on the other hand is concerned with the development of the non- agriculture sector. He published his model entitled. “Economic Development with Unlimited Supplies of Labour” in 1954 In his model, Lewis divides the economy in an underdeveloped country in two sectors namely the sector subsistence sector and the capitalist sector. Subsistence is identified with the agricultural sector of the economy while the capitalist sector implies mainly the manufacturing sector of the economy. Capitalist sector also includes plantations and mining where hired labour is employed for purposes of production. The capitalist sector can either be private or public in nature. Subsistence sector, that the agricultural sector is considered to be labour intensive. It does not use reproducible capital. It uses poor techniques of production and has very low productivity. 10.3.1    Assumption of the model 1)    The basic assumption of the model is that there exists surplus labour in the subsistence .sectors. It includes labour whose marginal productivity is zero as well as that whose marginal productivity, is positive but is less than the institutional wage. This labour comprises farmers, agricultural labourers, petty trader’s domestic servants and women. The surplus labour in the agriculture sector acts as a source of unlimited supply of labour for the manufacturing sector. By unlimited supply of labour. Lewis means that the supply of labour is perfectly elastic at a particular wages. This particular wage is somewhat higher than the institutional wage which each worker in the agricultural sector gets. Lewis calls it as an institutional wage because every worker gets this wage because of some institutional, arrangements. This wage is equal to an average share of each worker in the total output in the subsistence sector. If market forces were allowed to operate in the subsistence sector labourers with zero marginal productivity or those with a very low marginal productivity would not have received this wage. 2)    Importance of saving: Another important assumption that Lewis makes is about the sayings generated in the capitalist sector and in the subsistence sector. The capitalist sector invests its entire savings for its further expansion. Those, in the subsistence sector, on the other hand squander away their saving, if any in purchase of jewellery & for construction of temples etc. The propensity to save of the people in subsistence sector is also lower when compared with that of those in the capitalist sector. Lewis in fact so much fascinated by the higher propensity to save of the capitalist sector that he even advocates a transfer of income from the subsistence sector to the capitalist sector. He feels that steps have to be taken to raise the rate of savings from 10% to 15% if the development of the economy has to be smooth. 10.3.2    The Working of the Model: The explanation of working of the Lewis model is quite simple. He feels that if a wage, higher than the institutional wage prevailing in the subsistence sector, by a certain proportion of the institutional wage, is fixed in the capitalist sector, the capitalist sector will be able to attract in an unlimited quantity, the labour from subsistence sector. This will enable the capitalist sector of expand. It will, in turn lead to the generation of more savings in the capitalists sector The additional saving, will not only help the entrepreneurs to invest more but also to improve the quality of capital invested. This will result in more employment of labour from the subsistence sector This will lead to generation of more savings in the capitalist sector which can be further invested leading to employment of more surplus labour and so on. Figure 10.2 explains the processes of expansion of the Capitalists sector In the diagram AW is the wage rate fixed in the capitalist sector. It is higher than, W which represents the institutional wage. The wage in the capitalist sector has to be higher than the intuitional wage because only such higher wage can attract labour from the subsistence sector. At first, ON-I labour is employed. This will lead to the generation of surplus equal to AM'S, after the wages at the rate W have been paid. According to Lewis this surplus AMIS will be reinvested cither in old type of capital or may even be used to improve the existing techniques. All this will result in marginal productivity curve of labour moving M2M2. Now more labour at wage. We can employ ON2 amount of labour will now be employed. More surpluses will then be generated. It would be reinvested. Marginal productivity of labour curve will shift to M3M3 more labour can now be employed. Still more surplus will be generated and reinvested and so on. The process of transfer of labour from the subsistence sector to the capitalist sector will continue for some times till some obstacles, hindering this transfer appear. 10.3.3    Role of Bank Credit From the above analysis, one might get the impression that it is only through the surplus generated in the capitalist sector that the development of the capitalist sector takes place. This however is not correct. The process of development can also start if the capitalist sector initially does not invest its savings in the capital but borrows from the banks. According to Lewis the basic problems is to employ the labour from the subsistence sector and this can be initially done through investment of funds borrowed from the banks. Lewis is conscious of the fact that creation of bank credit will give rise to inflationary increase in prices. However, he is not much perturbed by this prospect. He is of the view that inflationary pressures will not continue forever. A time will come when the additional savings generated by the investment of borrowed funds become equal lo these very funds. At that time, prices will stop rising further. As he says, equilibrium is reached when savings generated through the investment of additional bank credit become equal to the amount of bank credit itself. He is also aware of another fact that If inflation can make the distribution of income unfair. However, he says, it will be good for the manufacturing sector if the distribution of income moves in favour of the capitalists. Of course, if inflation tilts the distribution of income in favour of the traders it will be bad for the economy.' It will only lead to more speculative activities. 10.3.4    Slowing of the Pace of expansion of the Capitalist Sector According to Lewis, expansion of the capitalist sector will continue unhindered so long as the supply curve for labour from the subsistence sector is perfectly elastic so long as the labour can be transferred to the capitalist sector at a constant wage. Lewis, of course is conscious of the fact that under certain circumstances, the supply curve for labour can turn, upwards. These circumstances are: i.    The pace of expansion of the capitalist sector is more rapid when, compared with the rate of growth of population in the subsistence sector. The surplus labour in that case will ultimately be fully exhausted. ii.    Technological development in the subsistence sector raise the predictability of labour with in that case will rise. We too will have to be raised then. iii.    As population increase, due to law of decreasing marginal return, prices of food and raw materials will rise. This will increase both W and W. iv.   When workers in the capitalist sector start imitating the living pattern of the capitalist themselves, they may ask for higher wages. v.   If any of the above four factors start operating, then according to Lewis, the expansion of the capitalist sector will slow down. 10.3.5    Impact of the Open economy: The open economy can encourage the immigration of labour. If this happens, it will help in the expansion of the capitalist sector. But immigration may not be so easy. If, in that case the pace of expansion of the capitalist sector slows down, capital may move out of the country as the economy is an open one. This may in turn lead to balance of payments problems and the problem of stability of rate of exchange. 10.3.6    Critical Review of the Model Some of the objections against Lewis’s model are as follows:— 1.    The assumption that disguised unemployment exists in the agriculture sector has not been accepted by many economists. Schultz, Viner, Heberler and Hopper are a few of such economists. According to them, the production in the subsistence sector will be affected when labour is withdrawn from it. With this will change. 2.    Lewis ignored the cost involved in training the unskilled worker transferred from the subsistence sector. Even if it is obtained at a constant wage rate, so for as its transfer from the subsistence sector is concerned, the supply curve may slope upwards so for as the capitalist sector is concerned if the cost of training rises is more and more labour is transferred. 3.    When labour is transferred from the subsistence sector share of agricultural output falling to each one left in the agricultural sector will go a rising. This means the institutional wage will go on rising with every transfer and so will be the wages paid in the capitalist sector. 4.    The model assumes that, besides labour, there is unlimited supply of entrepreneurs in the capitalist sector. This is not the in the case, of many of the underdeveloped countries. 5.    It is wrong to assume that a capitalist will, always re-invest their profits. They too can indulge in Unproductive pursuits. They can use their profits for speculative purposes. 6.    It is also wrong to assume that landlords always squander away their savings. The role of land lords of Japan in industrialization of the country is well known. 7.    The model assumes that there already exists a market for in the industrial products in the country. This  is wrong. People of an underdeveloped country may not be able to purchase the products produced by the expanding capitalist sector. Foreign markets, too, may not be available for the capitalist sector in the 'beginning. 8.    Inflation is not liquidating, as has been assumed by Lewis. Experience of various countries shows that if once prices start rising, it becomes difficult to control them. 9.    It is not easy to transfer labour from the subsistence sector to the capitalist sector by offering them an incentive of a little higher wage. Mobility of labour is very low. Many factors like family affection, difference in language, caste, religion etc, affect it adversely. 10.    Every underdeveloped country does not have surplus labour in the subsistence sector. As such the model does not apply to countries which are sparsely populated. The only positive point in the model is its ‘general' emphasis on the role of saving in economic development and on the potential that over populated countries have in developing themselves with the help of surplus labour. Exercise 10.1 Q1 . Explain the Different phases of Mellor’s Theory of Agricultural Development? Q2. Explain the Working of Lewis Model of Economics Development? 10.4    SUMMARY In this chapter we have studied the Mellor’s model agricultural development and Lewis’ model of Economic development. We have studied in that model that transfer of labour from the agricultural sector helps the development of the industrial sector. According to Mellor the main features are (i) Agriculture still occupy the most important position in the economy in terms of income generation (ii) Demand for agricultural products continues to grow due to increasing population (iii) Size of the farms continues to be small due to slow growth of the non-farm sector and (iv) Agriculture does not use machinery due to availability of cheap labour. 10.5    GLOSSARY •    Iso-cost line: A line along which the cost of something -- usually a combination of two factors of production -- is constant. Since these are usually drawn for given prices, which are therefore constant along the line, an iso-cost line is usually a straight line, with slope equal to the ratio of the (factor) prices. •    Iso-quant: A curve representing the combinations of factor inputs that yield a given level of output in a production function. •    Law of Diminishing Returns: The principle that, in any production function, as the input of one factor rises holding other factors fixed, the marginal product of that factor must eventually decline. •    The Production Possibility Curve:  For Mellor, this curve shows the relationship between total output of a given farm and the amount of labour used to produce that output. In other words, It is total productivity curve in value terms with labour as the independent variable. •    Iso-Utility Curve: The other tool that Mellor uses to show that labour is underemployed on larger farms is the iso-utility curve. It is just like  an indifference curve. A  curve  showing all  such combinations of goods and services, on the one hand and leisure on the other which give him the same satisfaction is called Iso-utility curve. •    Iso Utility Map: there is a set of iso utility curves, each higher curve indicating a higher level of satisfaction as compared with the one below it. If all such curves are drawn use get what is called, an iso-utility map. 10.6    ANSWERS TO SELF CHECK EXERCISES Exercise 10.1 Answer 1. Refer to section 10.2.1, 10.2.2 & 10.2.3. Answer 2 Refer to section 10.3.2. 10.7    SUGGESTED READINGS 1.    Mellor, J.W.: “Towards Theory of Agriculture Development in Herman, M. Southworth & B.E, Johnson (ed.) (1974) “Agriculture and Economic Growth”, London Cornell University Press. 2. Lewis W.A. (1954): Economic Growth with Unlimited Supplies of Labour”, The Manchester School of economics and Social Studies, May 1954. 3. Soni R.N. (2006): Leading Issues in Agricultural Economics, Jallandhar, Shoban Lal Nagin Chand & Co. 10.8    TERMINAL QUESTIONS Q1 . Examine the Mellor’s Theory of Agricultural Development? Q2. Critical evaluate the Lewis Model of Economics Development? UNIT-11MODELS OF AGRICULTURE DEVELOPMENT-III STRUCTURE 1    1.0 Objectives 1    1.1 Introduction 1 1.2 Ranis-Fie Model 11.2.1    The Initial Position 1    1 .3 Lewis Turning Point 1    1 .4 Analytical difference between the Lewis’ model and the Ranis-Fei model up to the present point of discussion 1    1.5 Impact of increase in productivity of agricultural labour on the labour supply curve for the industrial sector 11 .6 The Growth Path 1    1 .7 Critical Evaluation of the Model 11.8    The Jorgenson Model 11.8.1    In Jorgenson’s Model 11.9    Summary 11.10    Glossary 1    1 .1 1 Answers to Self-check Exercises 1    1.12 Suggested Readings 11 .13 Terminal Questions 11.0 OBJECTIVES After going through this lesson you will be able to: •    Explain the Ranis-Fie Model •    Analytically differentiate between the Lewis’ model and the Ranis-Fei model •    Give the critical evaluation of the Model 11.1    INTRODUCTION We have earlier studies Lewis’ model of Economic development. We have studied in that model that transfer of labour from the agricultural sector helps the development of the industrial sector. Lewis has ignored one important point in his model. He did not analyze as to what happened in the agricultural sector when labour was transferred from the agricultural sector, to the industrial sector. Such an analysis has been attempted by Ranis and Fei in their model. They have also examined how the changes that take place in the agricultural sector, consequent upon transfer of labour from it, affect development of the industrial sector. 11.2    RANIS-FIE MODEL The model assumes that an underdeveloped economy is predominantly an agricultural economy. It is a labour surplus and resources poor economy. The model assumes a close economy. In the model, the economy is divided into two parts, namely the agricultural sector and the industrial sector. The agriculture sector is assumed to produce only food grains. The model further assumes that disguised unemployment exists in the agricultural sector. It is also assumed that the law of diminishing marginal returns to labour applies in the agricultural sector from the very beginning and that after a point, the marginal productivity of labour falls to zero. The industrial sector is assumed to depend upon the labour in the agriculture sector, for its development. In this the model follows Lewis. 11.2.1    The Initial Position On the assumption that there is disguisedly unemployed labour in the agriculture sector and that the development of the industrial sector is yet to start, the situation in the two sector can be shown by diagram 1 In figure 1 .1 the process of the development of the industrial sector has been shown. Along OP, the marginal productivity of labour and wages has been shown in real terms, Curve dt and d’t’ are the marginal value' productivity curves as shown in the Lewis model Stt’s is the labour supply curve. This supply curve shows that labour is available at constant wage OS up to St. and at a rising wage level after this point, thus indicates the turning point for the labour supply curve as assumed by Lewis. This model, with the help of other figures i.e. fig.1 .2. & 1 .3 explains why the turning point for labour supply curve for the industrial sector. For this, we may first of all look at diagram 1 .3. In this diagram OA (read from 0 to A) is the total labour force in the agriculture sector. Curve RGCFX shows the total productivity of this labour. It is assumed that law of diminishing marginal returns to labour operates in agriculture. AD is the zero value labour because total production remains unchanged after. The model assumes, like Lewis that each labour whether disguisedly unemployed or not gets an equal share in the total agricultural output. The authors call this share, again like Lewis, the institutional wage. Slope of the line OX (i.e. AX/OA) shows the value of the industrial wage. In fig 1 .3 we can also fine a point beyond which along OA the marginal productivity of labour becomes less than the institutional wage. Thai point obviously is the one where the slope of the total productivity curve (i.e. the marginal productivity) is equal to the slope of the line OX, this point is accordingly reached when OP labour' is used, Curve OQ is the marginal productivity Curve for labour which falls below the line OX beyond Q. We can say that at the prevailing institutional wage rate, labour beyond OP i.e. PA, according to the author of the model is disguisedly employed. We must note here that the three figures i.e. 1 .1 , 1 .2 and 1 .3 lined i.e. these are related to each other through the employment of labour. Whatever labour is not employed in the agriculture sector is deemed to have been transferred to the industrial sector and employed there. If for example, only OD labour is employed in agricultural sector, then AD is deemed to have been employed in the industrial sector. Fig. 1 .2 represents a link between the agricultural sector and the industrial sector. It tries to show, oh the one hand, how much of food grains can be released by the agricultural sector for the industrial sector. On the one hand, it shows marginal physical productivity of labour in the agricultural sector. We may in the first instance, look at the food grains released by the agricultural sector on average basis i.e. per labour, transferred to the industrial sector. In the diagram (1 ,2) for AD labour, this average is just equal to its institutional wage, simply because the labour left in the agricultural sector will get only the institutional wage and redundant labour (i.e. zero value labour) will bring the balance with it. It will thus, bring its own share of institutional wages. So average surplus will be equal to the institutional wage itself. As shown the institutional wage in fig. 1 .2 and the AD labour get an average surplus equal to it. The authors of the model call it as the first phase of transfer of labour. In fig. 1 .2 the average surplus released by the agriculture sector falls after the transfer of redundant labour is over. It falls simply because now labour with positive-productivity is transferred to the industrial sector. As the labour left in agriculture sector ‘will continue to get the industrial wage. As there will be no cut in its share, all the cut will be faced by the labour that is transferred. So average surplus beyond AD in fig.1 .2 will fall, this will continue to fall till another bunch DP labour is transferred. The authors do point out that P in fig. 1 .2. shows the end of the 2nd phase of labour transfer. The phase signifies the point where marginal productivity of agricultural labour becomes equal to the institutional wage. After the second phase, the average surplus falls at still higher rate because now the labour left in the agricultural sector will not be paid wages equal to the institutional wage. After the second phases, the average surplus, falls at still a higher rate because now the labour left in the agricultural sector will not be paid wages equal to the institutional wage but higher than this simply because marginal productivity of labour in the agricultural sector is higher than the institutional wage. This will further cut down the share of the labour" transferred to the industrial sector SYZO shows the complete curve for average agricultural surplus. In fig. 1 .2 VDA is the marginal productivity of labour in the agricultural sector (read from O to A). It falls as more and more labour is used and becomes equal to zero when OD labour is used. We know that beyond D towards A, the labour is zero value labour: We may now look at the curve SYUV in fig. 1 .2. This can be taken as the curve showing the wages paid to the workers in the agricultural sector during various phases. We have already explained that during phase 1 and 2 the agriculture labourers will get wage equal to the institutional wage. This is shown in fig 1 .2. as the curve SYU After that they get wages equal to their marginal productivity. This is indicated by UV part of the curve. The authors call point U point P as the point of commercialization of agriculture because if the labour transferred to the industrial sector is such that in the agricultural sector only OP labour is left, then its wages will be determined by its marginal productivity (indicating a commercial motive) and will not be equal to the institutional wage. This is phase EH which according to the authors can be called phase of commercialization of agriculture. 11.3    Lewis Turning Point We may look at fig. 1 .1 again. The labour has to be transferred from the agricultural sector to the industrial sector. The industrial sector therefore must pay to the labour, the wages at least equal to the wages that it gets in the agricultural sector. Of course, it is presumed that the labour in the industrial sector will be paid in terms of the industrial products. In fig. 1.1, OS indicates the level of institutional wages of course, expressed in terms of industrial products. In the first phase, the transferred labour brings with it the average surplus equal to the institutional wage. So long as the transferred labour brings this constant level of surplus with it, it will go on getting the same wage of course, in terms of industrial products. The rate at which the wages in terms of industrial products are determined will be governed by the terms of trade between the agriculture products (food grains in this case) and the industrial products. If a term of trade remains constant (as is the case in the 1st phase) the level of institutional wage expressed in terms of industrial products will remain the same. What we find in fig 1 .3 up to point t OS continue: to be the constant wage rate (equal to the institutional wage paid to the agriculture labour but expressed in terms of the industrial products. Here the term of trade between agriculture and industry remain unchanged. This is because, according to the authors of this model, the terms of trade between the two sectors depends upon the fluctuations in the average agriculture surplus. If the average agricultural surplus remains unchanged, so will be the wages paid to the industrial workers. This very explanation follows for changes in the phase 2. As soon as the 2nd phase starts, average agriculture surplus released for each transferred labourer falls. This creates a shortage of food grains for the industrial sector. Terms of trade will rise for the agricultural sector. Now we have already seen that agricultural labour in the 2nd phase of labour transfer is also paid wages equal to the institutional wage. So labour in the industrial sector should also be paid wages equal to the institutional wage, though expressed in terms of industrial products. Now, as the terms of trade have started moving against the industrial sector (i.e. for the agricultural sector) when the second phase starts and this movement continues with every further transfer of labour, more, and more of industrial products have to paid as wages per labourer so that their value remains equal to the institutional wage as paid to the agricultural worker in phase II. This is the reason why the supply curve for labour in the industrial sector goes on rising upwards after point. In phase 3, this curve becomes still steeper. This because not only do the terms of trade continue to turn against the industrial sector, the labour in the agriculture sector also starts getting wages which are higher than the institutional wage. This is the reasons why in fig. 1 .1 the supply curve for it labour becomes till steeper after t. 11.4    ANALYTICAL DIFFERENCE BETWEEN THE LEWIS՚ MODEL AND THE RANIS-FEI MODEL UP TO THE PRESENT POINT OF DISCUSSION According to Ranis-Fei model point tend of the first phase) in fig. 1 .1 shows the Lewis turning point i.e. the point after which the supply curve of labour in the industrial sector will turn upwards. However Lewis himself did not consider this point as the upward turning point. For him all labour in the agriculture sector whose marginal productivity was either zero or was less than the institutional wage was available to the industrial sector at the institutional wage (or at a rate a little above it.) He never pointed out that as soon as the zero value labour was transferred to the industrial sector (i.e. up to the end of phase I in the present model) the supply curve for labour will start turning upwards. For him, some other labour too (whose marginal productivity was less than the institutional wage, was also available at a constant wage rate. The reason for tins difference in the views of the authors of two models is that unlike Ranis and Fei, Lewis did not take into account the effect of changing terms on trade on the supply price, of labour in the industrial sector. He totally ignored it, he assumed as if the wages to the transferred labour will be paid in agricultural products and as the institutional wages fixed in terms of agricultural produce, 'the labour transferred to the' industrial sector will continue to be available at the constant wage rate i.e. that institutional wage Ranis and Fei,, on the other hand assumed that the labour in the industrial sector will be paid, in terms of the .industrial products and they had to bring the hanging terms of trade into the picture So We find that whereas according to Ranis and Fei, Lewis” turning point appears as soon as phase in their model ends, according to Lewis himself, the turning point will appear at the end of the phase II If i.e. up to the point where labour in the agricultural sector is paid institutional wages. 11.5    IMPACT OF INCREASE IN PRODUCTIVITY OF AGRICULTURAL LABOUR ON THE LABOUR SUPPLY CURVE FOR THE INDUSTRIAL SECTOR Ranis and Fei refer to two factors that put off the Lewis turning point, i.e. the end of first phase when terms of trade changing against the industry. These factors are (i) the increase in population and the (2) the increase in the productivity of agricultural labour. Increase in population by supplying more redundant labour can put off ‘the end of the phase I. In this lesson script, we will pay our sole attention in the 2nd factor i.e. increase in labour productivity For this purpose we use diagram II, This diagram contains all that have been included in diagram I as the starting point. At the same time, it tries to show the impact in agricultural productivity on various aspects of the model. Before we proceed further, we may refer to certain assumptions that the authors make while discussing the impact of increase in agricultural productivity on the process of transfer of labour from the agriculture sector to the industrial sector. The first assumption is that even when the productivity of agricultural labour increases, the size of the labour force that has positive marginal productivity remains the same or in other words, the size of the zero value labour force in the agriculture sector remains unchanged. This is obviously a questionable assumption. Second assumption is also questionable. It is assumed that when the labour productivity increases, the institutional wage in the agricultural sector remains unchanged. Everybody will be getting the same old wage even why now there is more to share. Now, we may have a look on diagram 2. In the first instances we examine fig 2.3, shows how the increase in the productivity of agricultural labour effects the total productivity curve. Curve I shows the original total productivity curve. Curves II and III show the total productivity. After the increase in labour productivity has taken place in the agricultural sector. It is clear from the fig 1 .3 that as per assumption 2 described above, marginal productivity of labour becomes zero (i.e. total productivity curve becomes maximum, at the same point of labour, use i.e. OD labour and the institutional wage (as per assumption 2) is represented by the slop of the old line OX. Diagram 2.2 shows how the average agricultural surplus and the marginal physical productivity of labour is affected by increase in labour productivity. So far as Marginal Physical productivity of labour .is concerned, curve MMP, shows the original marginal physical productivity of labour. The two other curves MPPii and MPPiii are the two new curves showing an upward, movement in productivity of labour. As it has been assumed that the size of the zero value labour is the same all the marginal productivity curves reach zero point 6n OA as soon the first phase of transferred labour ends. So far as the average agriculture surplus curves are concerned. St is die original Average Agricultural surplus curve. As now agricultural productivity of labour has incased the curve shifts upwards. As curves II and ill show the average agricultural surplus curves corresponding to the increased total productivity curves in fig 2.3. It may be noted that curves AASII and III have not part parallel to OA as the AASI curve has. Rather, the curves are higher than the original one and slope downwards to the right from the very beginning. This is because, in the first instance, as the labour left in the agricultural sector still gets only the institutional wages in phase I the balance passed after increase in labour productivity will than the- institutional wage as was the case in the original situation. The average surplus will then goes on declining even in the first phase because in the first phase, the total additional output due to increase in labour productivity is the same throughout. This total addition goes to the share of the transferred labour as we have just pointed out. However, when more and more labour is ‘transferred in the first phase, the share of this additional output going 13 the transferred labour will go on falling. The result will be that each worker, originally in the first phase will be getting along with it an average agricultural surplus, which be over and above institution wage that it had receive earlier and that this additional average will go on declining as the labour is transferred from. In the agricultural sector to the industrial sector in the old phase 1. When we go through the increased average agricultural surplus curves i.e. AASi and AASii we will note one more point. In each curve, the average agriculture surplus is equal to the institutional wage at a point to the right of the original, point Y in diagram I (Pt fi in fig.2.2). This means that increase in the average agricultural surplus shifts the end of phase I (Original) towards the right. For example only after point of 2 in fig 2.2., the average agricultural surplus will be less then institutional wage (when we consider AASii, Similarly, If we consider curves AASiii it will show that the end of phase I has shifted to point f3. We may again look at the marginal productivity of labour curve in fig. 2.2. We have seen that as agricultural productivity of labour increase, these curves shift towards the left. This shift indicates another change. With every leftward shift, marginal productivity of labour rises and therefore the point where marginal productivity of labour institutional wage becomes equal to each other is reached with comparatively smaller number of workers being transferred to the industrial sector when we compare this situation with the original one. For example in fig. 2.2 originally at point Marginal productivity of labour was equal to the institutional wage A.S. After the increase in the productivity of labour io this point shifts to the left i.e. to 12. And………………… MPPiii, this point further shifts to the left i.e. to t3. This has an important implication for further analysis. We know that the point where institutional wage and the marginal productivity of labour are equal lo each other, has been treated by the author of the model as beginning of phase III so far as the transfer of labour from the agricultural sector to the industrial sector is concerned. We can therefore say mat with every increase in the productivity of labour, the beginning of II shifts left wards. Or in other words, the starting point of phase III is reached earlier when an increase in labour productivity lake place. The preceding discussion throws up an important point. We have seen that where an increase in productivity of agricultural labour pushed the end point of the first phase (also called the shortage point) to the right through increase in average agricultural surplus, it also pushed the point of commercialism of this agriculture towards the left. According to the authors of this model, there is bound to be particular increase in productivity of labour which will make the end of 1st phase and the beginning of III phase confided with each other. In other words, the II phase will, then disappear, In diagram 2.2, this point is reached at S3 where average Agricultural surplus and marginal productivity of labour are both equal to institutional wage. The authors call it the ‘turning point’. (This point is not the same as been referred to the model given by Lewis. This point is arrived at, after there is a certain amount of increase in agricultural productivity). This is a very important concept in this model. However we shall explain the importance of this point only alters we have discussed the impact of increase in the productivity of agricultural labour on the labour supply curve for the industrial sector. This impact can be read through diagram 2.1. In diagram 2.1 L1P1L1, is the original labour supply curve OL, is the equivalent of the institutional wage prevailing in the agricultural sector but paid in term of industrial goods. Now, as the average agricultural surplus increases due to increase in labour productivity in the agricultural sector, terms of trade will change in favour of the industrial sector (i.e. against the agricultural sector). A smaller basket of industrial goods will have to be paid for ensuring the equivalence of the old institutional wage (For that mailer, even for wages higher than this) in the agricultural sector. Of course, as the average agricultural surplus declines with more and more transfer of labour to the industrial sector, the terms of trade will change in favour of agriculture and wages paid to the transferred labour in terms of industrial goods will go on rising. The new supply curve, for industrial labour (because of increase in the productivity of labour in the agricultural sector) will thus start from a point below the old wage OS in the industrial sector and go on moving upward to the right (L2L2 and L3L3 are the new labour supply curves for the industrial sector). There is no horizontal portion in the new supply curves of labour. We may note one more point with regard to the new supply, curves for labour for the industrial sector. Each curve, based on a relatively greater increase in the productivity of agricultural labour, thought lying below the previous curve (showing, comparatively a small increase in the productivity) in the beginning, intersects this curve at some point on or intersects above the level of institution wage. For example curve L3L3 intersect both L2L2 & L1L1 curves and curves L2L2 insects curve L1L1. In other words, new labour supply curves do not lie below the previous labour supply curves throughout. This is because, according to the authors of this model, in the first instance, each change in the terms of trade against agriculture due to its increasing average agricultural surplus because of increase in the productivity of agricultural labour will push down the supply curve of industrial labour. But at the same time increase in agriculture productivity will make the new supply curve for industrial labour move upwards to the right more steeply especially for that part of the transferred labour which is paid not the institutional wage but an amount equal to its marginal productivity while in the agricultural sector. Following this, the authors of the model imply that greater the increase in the productivity of agricultural labour, lower will be supply curve for industrial labour in the beginning and greater will be its gradient in its later part and as a result, it will be ultimately intersecting the curve corresponding lo a smaller increase in agricultural productivity at one point or the other. Another point needs explanation, With new supply curves for labour, it is quite possible that the wage determined in industrial sector though the changed supply curve of labour and the demand curve for labour (as represented by its marginal productivity) are lower than before. However, even the lower wage so determined because of a favourable terms of trade for the industrial sector, due to increased productivity of agriculture labour, will ensure an amount of food grains equivalent to the institutional wage prevailing in the agriculture sector. If the marginal productivity curve of industrial labour also moves higher due to more investment in the industrial sector, the wages can rise back to the old level of institutional wage when paid in terms of industrial goods. In other words, one can say that now more labour can be employed at the old institutional wage in the industrial sector when labour productivity rises in the, agricultural sector or we can say that Lewis upward turning point is postponed with increase in the productivity of labour in the agricultural sector. However, an important point must be noted in this regard. Every increase in the productivity of agricultural labour will not push this point to the right. The ‘turning point’ as defined by the authors of this model is the ultimate limit. As soon as this point is crossed, wage in the industrial sector must become higher than the original institutional wage prevailing in the industrial sector. This is simply because wages in the competing agricultural sector, after the ‘turning point’ are above the institutional Wage itself. It may further be noted that the analysis in the model implies that this turning point for labour supply in the industrial sector will remain unchanged, other things remaining the same, even if the increase in productivity of agricultural labour is more’ than that winch has brought about this point. It can neither move to the right not to the left. New labour supply curves for industrial labour of course; will appear with every further increase in the productivity of agricultural labour but they will all be passing through the turning point itself. 11.6    THE GROWTH PATH The horizontal line in diagram 2.1 showing the institutional wage in the industrial sector has been called the balanced growth path up to the turning point. The authors of the model suggest that the two sectors should grow in such a manner that wages in the industrial sector /coincide with the old institutional wage up to the turning point. If only the agricultural sector develops, the industrial wage can, no doubt, fall below the .original institutional sector wage. But once this lower wage is fixed the industrial sector will not be able to employ more labour than that which is available at this wage. More labour is available to the industrial sector only at a higher wage. The industrial sector therefore should expand and increase the marginal productivity of its labour. Because it is only thon mat it can afford a higher wage in terms of industrial goods. Similarly, if the industrial sector wages are higher than the institutional wage (as fixed originally in the industrial sector) these should be brought down if the industrial sector is to grow up to the turning point smoothly. In case this is not done, higher wages will unnecessarily cat up the surplus in the industrial sector. It is possible to reduce the wages in the industrial sector by increasing productivity of labour in her agricultural sector and thereby to shift supply curve for industrial labour to the right. The authors, thus, suggest that the ideal solution before the ‘turning point’ is to develop both the sectors in such a way, may be, one at a time-that the initial advantage (or disadvantage) in terms of trade accruing to the two sector is maintained and the institutional wage (as originally paid in term of industrial products) prevails in the industrial sector. After the ‘turning point’ has been reached, the institutional wage loses its importance. Agriculture becomes commercialized and wages in this sector are higher* than the institutional wage and so will be wages in the competing industrial sec or, Wages in the industrial sector cannot be constant after the turning point. 11.7    CRITICAL EVALUATION OF THE MODEL: The model is, in a way, a pioneer in analyzing how changes take place in the agricultural sector as well as in the industrial sector and also in studying how the relations between the two sectors change when labour is transferred from the agricultural sector to the industrial sector. However, it suffers from certain limitations. Few of them are listed below:-(1) The model assumes that labour will shift from the agricultural sector to the industrial sector at the same wage, same wage which it is getting in the agricultural sector. This assumption is not correct, without some additional incentives no labourer will ever leave its original place of work. (2) There is another wrong assumption which underlies the' model. The model assumes that when the redundant labour or the disguisedly unemployed labour leaves the agricultural sector, the labour left behind the agricultural sector will continue to get wages equal to the institutional wage. This will never happen. It passes comprehension why should the agricultural sector, voluntarily spare the surplus over what the institutional wager determine for the labour left behind in the agricultural sector, for the industrial sector. The logical conclusion appears to be that when some labourers have left the agricultural sector those left behind will try to consume more of what was being produced by the agricultural sector. There per head consumption will then go above that indicated by the institutional wage. In other words, diagrammatically, a new line greater with a slope than that of OX (dig. 1 .3) will come into existence, thereby .reducing the agricultural surplus available for workers transferred to the industrial sector (below what the model assumes). (3)    The demand of the labour for agriculture surplus transferred to the industrial sector jean also go up even when their wages are not-higher than what they were getting in agricultural sector. Lewis gives a reason for this increase. The industrial workers may start imitating their capitalist employees and demand more of everything. This increase in turn, may affect the terms of trade etc. The model does not consider this aspect at all. The above discussion, in fact leads to another important conclusion which too goes against; the model. The model assumes that the, terms of trade change only when production falls, says, with the beginning of phase However, according to above analyses, the terms of trade will change in favour of the agricultural sector even with the beginning of the first phase, not due to fall in production but due to increase in demand for agricultural surplus. (4)    The model assumes that increase in productivity of labour is nothing to do with the transfer of labour from the agricultural sector. This, however, may not be true. With the reduction in labour, there might be a reorganization of agriculture which in turn may lead to an improvement in the productivity of labour. (5)    The model assumes a closed economy. It is assumed that neither there is an export of manufactured goods to the other country, nor there is an import of food grains from outside. If both these assumptions are dropped, the terms of trade will not move in favour of agriculture to the extent, as assumed under the model. Import of food grains will add to the supply of agriculture surplus, thus’ changing the terms of trade against agriculture. Same will be the case if manufactured goods are exported to other countries. (6)    The assumption that the agricultural surplus is limited is also questionable. There may be more surplus than what the transferred labour really needs. Is the extra surplus is exported to foreign countries, capital goods can be imported in exchange for it this will hasten the pace of economic transformation. (7)    The model assumes that the agricultural surplus- will be automatically transferred to the industrial sector when labour is transferred to it. This is a questionable assumption. However, it has been suggested that if taxes in kind are imposed on the agriculturalists, some surplus can be collected by the government and the industrial sector. (8)    In the analysis of the model, we come across another assumption. It is that even when there; is an improvement in agricultural productivity of labour, none of the zero value labour will give a positive productivity. It will still remain a zero value labour. This assumption is not correct. The logic says that when the productivity of all labour with positive marginal productivity increase-, some labour, earlier with zero marginal productivity should now start yielding positive marginal productivity. It is quite possible that the new technology responsible for improvement in agricultural productivity is at the same time labour using. This is, what was the case with Japanese technology for rice cultivation or with the recent seed- cum fertilizer technology adopted in India. (9)    The model assumes that institutional wage will remain unchanged when the productivity of agricultural labour rises. This assumption is not correct. It seems unlike that the agricultural labour which increases the total production will be debarred from sharing in the additional produce. However, this is one of me basic assumption of the model. If this assumption is dropped, the model will fail to arrive at its various conclusions. The whole model will become topsy-turvy. (10)    The model assumes that zero value labour exists in the agriculture sector. Many economists like Schultz have questioned this assumption. (11)    The model further assumes that only food grains are produced in the agricultural sector. This is against facts. (12)    Mellor feels that what the model tries to prove, is nothing new. It is all a matter 'common sense. It is always true that when labour is transferred from the agriculture sector to the industrial sector, demand for food grains will rise and this will turn the terms of trade against industry. It is also a matter of common knowledge that if agricultural productivity rises, food grains will become cheaper and this will reduce the hindrance in fie way of development of the industrial sector. 11.8    THE JORGENSON MODEL The Jorgenson model has been considered by some as the application of the neo-classical theory of growth in LDCs, Actually, Jorgenson’s model has elements of both of classical and the neo-classical theory. On the one hand, Jorgenson assumes, along with Lewis and Fie, that ‘Surplus’ labour may exist in LDCs but not in the sense of zero MPL in agriculture. The framework of analysis is still a ‘dualistic’ model which consists of an industrial and an agricultural sector. Total (=Qa) in agriculture sector is given by land (=L) and labour (=N). Such a production function is subject to the operation of the law of diminishingreturns; 4t is also assumed that technical progress in agricultural is neither labour nor capital using, that is, it is neutral. Let the production function to be given by the following equation: Qs = e^N1^ Where eαt measures a change in output due to technical progress. If it is assumed that supply of land is given the equation can be written as follows: Q. = e^N'* Let per capita output be given by Y-Q/N YsQ/N-ea,N'‘p                             (3) If equation (3) is differentiated with respect to time ( = t) and the equation is divided by Y, the follow equation is obtained. If N7 N - r| (i.c. the rate of growth of labour) than equation (4) cash written as follows. . • . y/Y-a-p^ ?.  ■'        . *-   ......,¿.(5) Y~(a-pii)Y 4 ’ (         (6) . The time path of output is then given by the following equation:, (Y-^e^YiO)             ’    (7) It is clear that to get a positive growth of output, we should have(7) a * 0 H >0 In many LDCs, it is reasonable to assume that the value of P will remain constant as the output elasticity with respect to changes in labour is relatively stationary, hence to reduce the rate of growth of population. As long as α-η or positive growth of agricultural output per captia will be ensured the economy will grow. But when α-η or positive growth of agricultural output per caption will not be ensured the economy will stagnate at low level equilibrium trap; 11.8.1 In Jorgenson՚s Model: More generally, savings = gross investment = net capital formation in the absence of depreciation is assumed to depend upon time. In Jorgenson’s model, however, the way in which capital accumulation depends on the income of society is through profits in the industrial sector, it is all of capital share. If there were capital used in agricultural, and therefore the possibility of investment in the agricultural sector existed, a mechanism for the allocation of investment between the formulation would make clear the importance of people’s preferences in determining how an economy grows, preferences which are almost universally neglected in discussion of growth. Jorgenson avoids all this by simply assuming all profits are invested, an assumption which is common to the Lewis model and to the Ranis - Fei extension of it, but this means role of preferences, particularly those for present versus future consumption which play such a crucial role in Schultz (1964) characterization of traditional agriculture, are essentially suppressed. A necessary condition for a “Jorgenson” take off into non agricultural growth is a sufficient rate of increasing efficiency in' agriculture and a sharply falling income elasticity 6f+demand for food, which taken together, permits the emergence of an agricultural surplus available to support a non-agricultural population. In Jorgenson model of dual economic growth, once an agricultural surplus emerges that permits sustained non agricultural growth, the agricultural sector declines relative to the overall economy but continues to expand absolutely. The main criticism against Jorgenson model is that it is” based on the experience of Japanese economy and short run prediction of classical model has been compared with the asymptotic result of the neo-classical theory. He has not included the capital in his description of agricultural production function where as it is a well established fact that Capital has played a tremendous role in agricultural development. Only the role of supply factors has been highlighted and demand factors are totally ignored. Finally both, the ‘classical’ (Lewis and Ranis— Fei) and the ‘Neoclassical’ (Jorgenson) models have overlooked the important role played by services sector. Without proper infrastructure, growth rates in both sectors could be significantly reduced. Exercise 11.1 Q1 . Analytically differentiate between the Lewis’ model and the Ranis-Fie model? Q2. What is the Impact of increase in productivity of agricultural labour on the labour supply curve for the industrial sector? Q3. Examine the Jorgenson Model? 11.9    SUMMARY No doubt the Ranis- Fie model suffers from many infirmities and empirically its conclusions cannot be substantiated. Still it has some home truths. For instance, it is correct in saying that efforts must be made to ensure that agricultural surplus available for the industrial sector should increase as the industrial labour force increases. Similarly, agricultural productivity should be increased if the industrial development is to be smooth. Again the suggestion that steps should be taken to change the terms of trade for one sector at one time and for the other at another time is also quite sound. 11.10    GLOSSARY •    Elasticity of demand: the percentage change in demand for an item in response to changes in its market price. It assumes that income and other variables remain constant. Also called demand elasticity. •    Investment: the placing of money so that it will increase in value and produce an income (either in an asset, such as a building, or by purchasing shares, placing money on deposits, etc.) •    Per capita income: the total national income divided by the number of population. It can be calculated more accurately by giving more weight to adults. Also called income per capita, income per head. •  Industrial sector: the sector of the economy dealing with industry which produces goods. Also called secondary sector. • Agricultural sector:  the sector  of an economy formed by agriculture, forestry and fishing. •    Closed economy: a type of economy which does not trade internationally and is not subject to outside influences. 11.11    Answers to Self-Check Exercises Exercise 11.1 Answer 1 Refers to section 1 1 .4. Answer 2 Refers to section 1 1 .5. Answer 3 Refers to section 1 1 .8 11.12    SUGGESTED READINGS 1    . R.N. Soni: Issues in Agricultural Economics, Shoban Lal Nagin Chand & Co. Jallandhar. 2 . Ranis G and John: C.II. Fie (1901) “A theory of Economic Development American Economic Revieul 1961 .” 11.13    TERMINAL QUESTIONS Q1 . Critically examine the Ranis-Fie model? UNIT-12 NEW AGRICULTURAL STRATEGY AND GREEN REVOLUTION STRUCTURE 12.0 Objectives 12.1    Introduction 12.2    The New Agricultural Technology 12.3    Factors Responsible for Green Revolution 12.4    Effects of Green Revolution 12.5    Summary 12.6    Glossary 12.7    Answers to Self-check exercise 12.8    suggested Reading 12.9    Terminal Questions 12.0 OBJECTIVES Studying this chapter should enable you to understand: •    Meaning and Components of Green Revolution •    Economic Impact of Green- Revolution on Indian agriculture •    Problems associated with Green-Revolution 12.1    INTRODUCTION The dramatic transformation in agriculture practices that involves the use of new methods of cultivation and inputs refers to as Green Revolution in India. The green revolution consists of technological improvements which were mainly adopted to increase agriculture productivity. The green revolution occurs as a result of adoption of new agriculture strategy during mid 60’s by Government of India to achieve self-sufficiency in the food-grains production. These changes bring about a substantial increase in agriculture production in a short span of time. 12.2    THE NEW AGRICULTURAL TECHNOLOGY The new agricultural technology consists of a package of complimentary inputs, high-yielding varieties of a seed, fertilizers and pesticides which can be utilized only on water assured areas. The strategy of agricultural growth adopted since the mid-sixties has come to be known as new agricultural strategy. The green revolution can be described as the large-scale adoption of an agricultural technology, adopted for use in tropical regions. The transfer of this technology from developed to developing countries was made possible by the work of scientists from OECD countries and from developing countries, much of it within non-temperate environment because of the ‘location specificity’ of improved varieties of seed. The technology embodied in the new varieties of seed has provided the potential for increasing yields and output of selected food grains. The first stage of new strategy related to Intensive Agricultural District Programme (IADP) was started in 1960-61 in three districts and was subsequently extended by stages to another thirteen. A modified version of the same approach was extended to several other parts of the country in the form of Intensive Area Agricultural Progamme (IAAP), During mid-sixties, a major change occurred with the introduction of HYV seeds with complementary inputs in areas with assured irrigation. The year 1967-68, therefore, marks the beginning of a new agricultural strategy. The new agricultural strategy is concerned not only with a higher yield but with a greater intensity of cropping. Entirely new crop rotations have been made possible by the development of short duration varieties of paddy, Jowar, bajra, maize suited to different agro-climatic conditions. The new strategy relies on high-yielding varieties of crops multiple cropping, the package approach, modem farm practices and spread of irrigation facilities. The ‘green revolution’ can be described as the large scale adoption of new agricultural strategy, adapted for use in tropical regions or rise the result of this strategy, in the form of enormous increase in food grain output, is often referred to as the green revolution. Various development programmes initiated the government and the adaptability of the fanners have given rise to a sleep upward trend in agricultural production, particularly in the food grains In. the preceding chapter we have analyzed the trends in production and productivity of major food crops in India suite 1951 . The food grains production increased from 51 million tons in 1951 -52 to 89 million tons in 1904-65. The year 1965- 66 and 1966-67 were the severe, draught and caused a severe setback to food grains product-oil and dislocated the whole economy. The impressive increase in farm production that occurred during 1967 to 1971 revived the hopes about agricultural progress that waş stagnant during 19555-66 and 1966-67. Thus optimism prompted some economist to identify the increasing production of food grains as ‘green revolution.’ The technology embodied in the new varieties of seed provided me potential for increasing yields and output of wheat and rice. The ‘green revolution’ also incorporates a package of new agricultural practices, and two together from the technology of the high yielding varieties. ‘The technology fallows new crop Calender, given the shorter maturing period of the new varieties and the possibilities of multiple cropping. Each new input bring with it a new set of cultural practices. ‘The farmer should know how much fertilizer to use in which type of soil, when an in what proportion between nitrogen, phosphate and potash. Similarly, the farmer should know which type of insect to which the particular variety of seed is vulnerable. Fanner using tractors, seed drills, and so on should learn their use and maintenance. It is interesting to note that the share of rice and wheat in total food grains production which was 39.56% & 17.39% during 1967-68 and has gone up to 44% and 33.26 percent during 2005-06 respectively. The overall production of food-grains was estimated at 217.3 million tons in 2006-07. For three consecutive years (2005-06 to 2007-08), food-grains production recorded an average annual increases of over 10 million tones. The total food-grain production in 2007-08 was estimated at 230.78 million tones as against 217.3 million tons in 2006- and 208.60 million tons in 2005-06.The important point to note is that thé share of course grains has been decreasing not only in relative term but also in absolute terms. This mean that increase in production of rice and wheat has been brought about partly by increase in yield and by diverting me area under other food crops of wheat and rice since the production of wheat and rice has became relatively profitable and there, are shifts in cropping pattern, ‘technological breakthrough in rice and wheat combined with price support, market infrastructure, subsistence requirements, les price and yield risk have been the causes of continuous increase in area of these crops. The productivity of wheat has increased from 851 kgs per hectare in 1960-61 to 2679 kgs per hectare in. 1996-97 per hectare yield of rice has also increased from 1013 kgs to 1882 kg during the period. These trends do not reveal much about the recent developments that are otherwise visible. Rice production for example, has started gaining momentum in the areas which traditionally belong to wheat belt. These areas include Punjab, Haryana and Western Uttar Pradesh. Similar is the case with the production of Wheat, Rice production states are also contributing to the production of wheat. The new technology for these crops has started percolating to the small'farms. The high growth rates is the adoption of the new technology demonstrates the capability of Indian farmers to use new input effectively despite the fact that illiteracy still ranks high in rural areas. M.S. Swaminathan has truly commented, “The wheat example clearly disproved old notions on the conservation of established beyond doubt that our peasants will take to new technology. Speedily and efficiently provided they are convinced that the technology is economically sound and they are enabling to adopt it through appropriate input supply and extension activities.” 12.3    FACTORS RESPONSIBLE FOR GREEN REVOLUTION: 1.    Adoption of high-yielding varieties of seeds: The use of high-yielding varieties of seeds since 1966 has resulted in substantial increase in food grain production. The cause of breakthrough in the production of wheat and rice has been attributed to magic seeds and certified seeds adopted by the agriculturists. The role of National Seeds Corporation, State Seeds Corporation and Agricultural Universities in distributing these seeds to the farmers, indeed, has been commendable. The following table shows the progress’ of area under yielding variety of crops since 1965-66 onwards. " Area under high yielding variety of selected crops in India (Million Hectares) | Year/crop | 1965-66 | 1970-71 | 1980-81 | - 1991-92 | 1997-98 | |---|---|---|---|---|---| | Wheat | 0.54 | 6.5 | 16.1 | -21.4 | 23.0 | | Rice | 0.89 | 5.6 | 18.3 - | 27.2 | 32.0 | | Maize | 0.21 | 0.5 | 1.6 | 3.0 | 3.6 | | Jawar | 0.19 | 0.8 | 3.5 ' | .8.0 | 9.0 | | Bajra | 0.6 | 2.0 | 3.7 | 6.0 | 7.0 | | Total HYV | | 15.4 | 43.1 | 66.6 | 76.6 | Distribution of certified seeds for wheat and paddy has shown a tremendous increase during the period 1970-71 to 1997-98. 2.    Supply of chemical fertilizers: Besides high-yielding varieties of seeds, chemical fertilizer is the other input which is responsible for making the green revolution a signal success. In fact, the latest agricultural technology is referred to as the seed- cum-fertilizer technology. The demand for fertilizers has been increasing after green revolution. The total amount of fertilizers used in 1960-61 was 292 thousand tones (nutrients). In 2001- 02, the total consumption of fertilizers was 17400 thousand tones (nutrients). The annual rate of growth of certified/quality seeds distribution is expected to accelerate from 12.1 per cent in 2005-06 to 18.1 per cent in 2006-07 Per hectare consumption of fertilizers has increased from 69:8 kg in 1991 -92 to 1 13.3 kg in 2006-07 at an average rate of 3.3 percent {Economic Survey 2008-09}. 3.    Expansion of irrigation facilities: Contribution of irrigation facilities is yet another important aspect-of green revolution which merits attention. Thé net area irrigated has increased from 24661 thousand hectares in 1961 -61 to 80700 hectares in 1996-97. The role of irrigation facilities in bringing about the green revolution cannot be gainsaid. Sir Charles Trevelgan rightly observed, “Irrigation is everything in India. Water is more valuable than land, because when water is applied to land it increases its productiveness at least six-fold and renders great extent of land productive, which otherwise, would produce nothing or next to nothing.”According to the Indian Council of Agricultural Research (ICAR), the production of irrigated crops is on an average 50 to 100 per cent higher than that of unirrigated crops in the same locality. Extension of irrigation facilities in the form of major and medium projects, minor irrigation projects like wells and tube wells has led to the adoption of multiple cropping pattern, introduction of modern farm technology and protection of the crops from drought. All these factors result in spectacular increase in agricultural production. Further, many economists consider irrigation as an important factor for providing employment opportunities to the ruralites.” Increased irrigation facilities have resulted in the increase in area under double cropping and has increased the cropping intensity which has as been discussed in the previous lesson. 4.    Use of machinery: Economists like Bergmann hold the view that despite its adverse effect on overall employment, the role of machinery in accelerating the growth of green revolution is, indeed, great. The use of modern agricultural tools and implements like tractors, harvestors, threshers, pump sets sprayers etc. has led to progressive agriculture. As a consequence of the use of machinery, there has been substantial increase in the area under assured irrigation, multiple cropping and increase in agricultural productivity. 5.    Provision of agricultural credit: Credit is another necessary input to increase agricultural productivity. Co-operative credit institutions such as Primary Co-operative Societies, Central Co-operative Banks and State Co-operative Banks for short- term credit and Land Development Banks for long-term credit have been set up throughout the country in quite large numbers. Besides this, Regional Rural Banks, commercial banks like State Bank of India and National Bank for Agriculture and Rural Development have also helped the farmers to grow more output. 6.    Soil conservation: Soil conservation is another significant cause of green revolution. Various soil conservation schemes have led to the conservation of soil fertility and thereby contributed to increased output. 7.    Development of infrastructure: Green revolution in the Indian context has attained considerable success. It is mostly because infrastructural facilities in the form of transport and communication, regulated markets, storage and warehousing, agricultural education and training etc. have enabled the farmers to take recourse to the modern art of cultivation. 8.    Multiple cropping programmes: The multiple cropping programmes aims at increasing the cropping intensity of land. Further, it is instrumental in increasing agricultural production. 9.    Incentive prices: The incentive price policy of the government has induced the agriculturists to grow more. Besides fixing remunerative prices for agricultural crops, the government has also been subsidizing the purchase of various agricultural inputs used by the farmers. 10.    Land reforms: The adoption of land reform measures in the form of abolition of intermediaries, security of tenure, consolidation of holdings, ownership right on the tenants, regulation of rent, ceiling on land holdings and cooperative farming goes a long way in increasing agricultural productivity. 11.    Development programmes for small and marginal farmers: So far as District Rural Development Agency is concerned, special attention has been given to the problems of small and marginal farmers. They are being provided with loans at subsidized rates. As a result they can adopt NAT without any difficulty. 12.4    EFFECTS OF GREEN REVOLUTION The place of agriculture in Indian economy has never been so prestigious and important as it is today. Today, agriculture is a revolutionary concept to an Indian farmer. The green revolution holds a green promise for future growth of agricultural production and productivity. The impact of green revolution can be discussed as follows: 1.    Spectacular increase in agriculture production: The dependence on food imports is eliminated with the increase in agriculture production. The country becomes self-sufficient in food-grains. In fact India was the second largest importer in 1966 and it imported no food-grain in subsequent decades except during late 80’s and early 90’s mainly due to failure of monsoons or untimely rains or floods in different regions. However, it may be noted that in recent years annual growth in the food grain production is losing its momentum. 2.    Improvement in productivity: The tremendous increase in agriculture production occurred as a result of improvements in productivity. The productivity was quite low in the pre-green revolution period. The substantial increase in the productivity occurred in wheat and rice in the earlier periods but later on it spread to other crops also. 3.    Increase in Employment: Green revolution generated employment opportunities into diverse activities which were created as a result of multiple cropping and mechanization of farming. It helped to stimulate non farm economy that generated newer employment in various services such as milling, marketing, warehousing etc. 4.    Food grain Price Stability: The adoption of new agricultural technology has led to the increased production and marketable surplus of crops especially food grains that have resulted into price stability of food items. 5.    Strengthening of forward and backward linkages with industry: The increase in agriculture production has strengthened the forward linkage of agriculture sector with industry in the sense of supplying inputs to the industry. The backward linkage with the industry has also received a boost as agricultural modernization created larger demand for inputs produced by industry. (1)    Increase in personal inequalities in rural areas: The income inequality between rich and poor increases due to: (i)    The owners of large farms were the main adopters’ of new technology because of their better access to irrigation water, fertilizers, seeds and credit. In other words, given the need for complex agricultural techniques and inputs, the green revolution benefits the large farmers. The small farmers lagged behind the larger farmer as small farmers had to depend upon traditional production method. Since the rich farmers were already better equipped, the green revolution accentuate the income inequalities between rich and poor. (ii)    Green revolution resulted into lower product price and higher input prices which also encouraged landlords to increase rents or force tenants to evict the land. (iii)    The mechanization pushed down the wages of and employment opportunities for unskilled labor in the rural areas thereby further widening the income disparities. (2)    Increased Regional disparities Green revolution spread only in irrigated and high-potential rain fed areas. The villages or regions without the access of sufficient water were left out that widened the regional disparities between adopters and nonadopters. Since, the HYV seeds technically can be applied only in land with assured water supply and availability of other inputs like chemicals, fertilizers etc. The application of the new technology in the dry-land areas is simply ruled out. The states like Punjab, Haryana, Western UP etc. having good irrigation and other infrastructure facilities were able to derive the benefits of green revolution and achieve faster economic development while other states have recorded slow growth in agriculture production. (3)    Environmental Damage Excessive and inappropriate use of fertilizers and pesticides has polluted waterway, killed beneficial insects and wild life. It has caused over-use of soil and rapidly depleted its nutrients. The rampant irrigation practices have led to eventually soil degradation. Groundwater practices have fallen dramatically. Further, heavy dependence on few major crops has led to loss of biodiversity of farmers. These problems were aggravated due to absence of training to use modern technology and vast illiteracy leading to excessive use of chemicals. (4)    Restrictive Crop Coverage New agriculture strategy involving use of HYV seeds was initially limited to wheat, maize and bajra. The other major crop i.e. rice responded much later. The progress of developing and application of HYV seeds in other crops especially commercial crops like oilseeds, jute etc has been very slow. In fact, in certain period a decline in the output of commercial crops is witnessed because of diversion of area under commercial crop to food crop production. The basic factor for non-spread of green revolution to many crops was that in the early 1 960’s the severe shortage in food grains existed and imports were resorted to overcame the shortage. Government initiated green revolution to increase food grain productivity and non-food grain crops were not covered. The substantial rise in one or two food grain crop cannot make big difference in the total agricultural production. Thus new technology contributed insignificantly in raising the overall agricultural production due to limited crop coverage. So it is important that the revolutionary efforts should be made in all major crops. Exercise 12.1 Q1 . What are the important components of Green Revolution in India? Q2. Explain the meaning of HYV seeds? Q3. What are effects of green revolution? 12.5    SUMMARY It can be concluded that green revolution is a major achievement for India which has given it a food-security. It has involved the adaptation of scientific practices in the agriculture to improve its production and productivity. It has provided benefits to poor in the form of lower food prices, increased migration opportunities and greater employment in the rural non-farm economy. However, the inequalities between region and individuals that adopted green revolution and those who failed to adopt has worsened. Further, green revolution has led to many negative environmental impacts. The policy makers and scientists are urged to develop and encourage the new technologies that are environmentally and socially sustainable. The green revolution resulted quantitative and qualitative development in the agriculture in India. The quantitative improvement occurs as a result of steep increase in the production of agriculture output. The qualitative improvement resulted into adoption of modernized technology in the agriculture. 12.6    Glossary •    Green revolution: the development of new forms of cereal plants such as wheat and rice and the use of more powerful fertilisers, which give much higher yields and increase the food production especially in tropical countries. •    The  new agricultural:  technology consists of a package of complimentary inputs, high-yielding varieties of a seed, fertilizers and pesticides which can be utilized only on water assured areas. The strategy of agricultural growth adopted since the mid-sixties has come to be known as new agricultural strategy. •    Multiple cropping: agriculture, multiple cropping is the practice of growing two or more crops in the same space during a single growing season. •    Regional disparity: The differences between regions with respect to specified variables such as income, employment etc, 12.7    Answers to Self-check exercise Answer1 . Refer to section 12.3. Answer1 . Refer to section 12.3. Answer1 . Refer to section 12.4. 12.8    SUGGESTED READING 1.    R.N., Soni (2006): Leading Issues in Agricultural Economics”. 2.    Chand, Ramesh, S.S. Raju and L.M. Pandey (2007): Growth Crisis in Agriculture, Economic & Political Weekly, June 30. 3.    Mishra, Srijit and D. Narasimha Reddy (201 1 ): Persistence of Crisis in Agriculture: Need for Technological and Institutional Alternatives (in India Development Report, 201 1 , edited by D.M. Nachane, Oxford University Press, New Delhi). 4.    Rao, P. Parthasarathy, P.S. Birthal and P.K. Joshi (2006): Diversification towards High Value Agriculture, Economic & Political Weekly, Vol. XLI, No. 26, June 30. 5.    Report of the National Commission on Agriculture (1976): Ministry of Agriculture, Government of India, New Delhi. 6.    Saggar, Mridul (1992): Issues and Concerns in Indian Agriculture, Reserve Bank of India Occasional Papers, Vol. 3, No. 3, September. 7. D.N Dhanagre (1987) “Green Revolution and Social Inequalities in India”. EPW, May 1987. 8. George Blyn:  “The Green Revolution Revisited Economic development and Cultural Change’ Vol. 31, No.4 July, 1983. 12.9    TERMINAL QUESTIONS Q1. “Green Revolution has increased he production level substantially. At the same time it has led to substantial increase in the inter-regional and inter-personal inequalities”. Discuss? Q2. “Technological progress is a necessary but not sufficient condition for agriculture growth in India.” Comment on the statement. UNIT-13AGRO-CLIMATIC ZONAL PLANNING Structure 13.0 Objectives 13.1    Introduction 13.2    The Programme for Agro-Climatic Regional Planning (ACRP) 13.3    The Macro Objectives of Agro-Climatic Zonal Planning 13.4    ACRP Programme 13.4.1    Western Himalayan Region (Zone I) 13.4.2    Lower Gangetic Plains Region (Zone III) 13.4.3    Eastern Plateau and Hills Region (Zone VII) 13.5    Basic Concerns Underlying the ACRP Approach 13.6    Agro Climatic Regional Planning In Changing Context of Planning For Liberalization 13.7    Summary 13.8    Glossary 13.9    Answers to the Self Check Exercises 13.10    Suggested Readings 13.11    Terminal Questions 13.0 Objectives After going through this lesson you will be able to: •    Explain the Programme for Agro-Climatic Regional Planning •    Define Macro Objectives of Agro-Climatic Zonal Planning •    Describe the basic Concerns Underlying the ACRP Approach 13.1    Introduction India’s experiment with planning has resulted in many notable successes as well as many deficiencies in the agricultural front. Important changes have taken, place in Indian agriculture since the introduction of the new agricultural technology, increased incidence of multiple cropping permitted by increased irrigation has led to increase in effective area under cultivation which has resulted in increased production/productivity and employment gains and converted the nation from an importer to a marginal exporter of food grains. Though new agricultural technology has succeeded in enhancing food grains production, but some distortions have occurred in the pattern of agricultural development. Firstly, very large interpersonal inequalities continue to exist in land distribution. Secondly, employment opportunities remain bleak in the rural sector. Thirdly, new agricultural strategy has now spread to all regions with the result that regional inequalities have remained quite high and in some cases have tended to increase. Finally, it is seen that new technology has been more concerned with promotional aspects and the efficiency in resource use has not been given importance. Though green revolution has helped in achieving the goals of enhanced food production, yet it has led to farm practices which appear non-sustainable. The basic need in these circumstances is to review our agricultural policy, to recast our priorities and to formulate an integrated multi-sector programme within agriculture to reverse the downward slide and to put the economy on the path of equitable growth. It is necessary to identify the critical problems in each region and plan for their removal. 13.2    THE PROGRAMME FOR AGRO-CLIMATIC REGIONAL PLANNING (ACRP) The programme for agro-climatic regional planning - (ACRP) was initiated by the planning commission in 1988 to develop regional perspectives for agricultural growth, diversification and development of agro-processing activities. The objective was to identify the comparative advantages of different regions and the region-specific potentialities for growth. Once these are scientifically identified, they would provide the basis for preparing regional plans which, in turn, through aggregation would give the agricultural part of the plan. The country was delineated into fifteen regions for this purpose and for each region a planning team was set up headed by the vice- chancellor of Agricultural University and consisting of experts drawn from the region. In the subsequent steps, the fifteen regions were further subdivided into smaller zones. Currently ACRP has begun preliminary exçrcises at the district level to prepare district plans consistent with the plans at the higher level of hierarchy. The target-guiding ACRP is to build up an effective link between the national plan and the plans prepared at the district and sub-district levels during the Ninth Five Year Plan. The Panchayati Raj Institutions at village, taluk and district levels would prepare the district plans. The plans prepared by the PRI’s, based on participatory processes involving people’s representatives, would form the ACRP approach. Above the district level, the present planning machineries at the state and central levels would  continue to  operate but they would play primarily a supportive role to eventually convert the present top-down planning into an integrated system with the dominant role played by the bottom-up process. The ACRP aims at reducing regional imbalances in agricultural growth and policy on farm development through agro- climatic regions and sub-regions, diversification of agriculture and boosting of farm exports, distribution of quality seeds, agricultural credit and higher employment generation in the farm sector. This also aims at scientific management of regional resources to meet the requirements of food, fiber, fodder and fuel wood without eroding the status of natural resources and environment. For attaining this end, the development will have to be achieved through an appropriate mix of crop production and allied activities including animal husbandry, horticulture, forestry and agro- processing etc. 13.3    THE MACRO OBJECTIVES OF AGRO-CLIMATIC ZONAL PLANNING The macro objectives of agro-climatic zonal planning are: (a)    To attempt to board demand supply balance of major commodities at the national level based on careful analysis of the potential and prospects of various zones, (b)    To maximize the net income of the producers, (c)    To generate additional employment for the benefit of the landless labourers and (d)    To provide a scientific and sustainable use of natural resources particularly land, water and forests in the long run. 13.4    ACRP PROGRAMME In the ACRP programme the country was divided' into 15-agro-climaie regions. The criteria adopted were homogeneity in agrocharacteristics and feasibility in terms of planning and operationalization with reference to the geographical area covered. The salient-features of the 15 agro-characteristics delineated by the planning commission are presented in Table 1 . Each zone vas divided into several sub-zones the number of sub zones or sub-regions being restricted to five or six for each zone, in order not to clutter up the overall perspective. To increase the degree of homogeneity pertaining to agro-climatic parameters, these 15 agro- climatic zones have been further divided into .73 sub-zones on the basis .of more specific soil topography, climate and cropping pattern characteristics, for the sake of administrative convenience a district has been taken as the ultimate planning unit. Based on these guidelines, we illustrate its essential methods by describing the plan for three different regions, a hill region, a high rainfall region and a dry region. 13.4.1    Western Himalayan Region (Zone I) The Western Himalayan zone consists of three district sub-zones of Jammu & Kashmir, Himachal Pradesh and the hills of Uttar Pradesh. Its salient features are given in Table 1 . The core strategies suggested for development of zone 1 are: (i) soil and water conservation; (ii) land use; (m) fruit ‘crop development; (iv) high value crops; and (v) transport, and communication. This should be supplemented with (a) marketing and storage; (b). Water management; (c) agro processing; (d) livestock production; (e) social forestry; (i) Seed production; and (g) fisheries, An integrated development of soil and water through land treatment and plantation of, tree crops- according to topography was suggested. It    was    also     proposed    that    land     suitable    for agriculture/horticulture/pasture/forestry should be demarcated. To overcome the: major constraint of transport of perishable commodities, rope trollies were recommended. For irrigation purposes, rainwater runoff should be collected in tanks. Setting up of more agro-processing units was also proposed, since the number of these units was quite less. In order to meet with the requirements of fuel and fodder, prevent further degradation of forest and preserve the eco-system, social forestry development was accorded the top priority. 13.4.1    Lower Gangetic Plains Region (Zone III) The West Bengal lower gangetic Plain was subdivided into four subregions the Baring Plains, the Central Alluvial Plains, the Alluvial Coastal Plains and the Rash Plains. This zone accounted for 12 percent of rice production of the country. Per capita NSA of the zone was only 0.095 ha as compared to the national average of 0.223 ha in 1981 reflecting excessive pressure of population on land and the major problems in the development of agricultural were water management and drainage. The following strategies were suggested for the water management and development of irrigation potential. a)    Proper control of irrigation system and regulating supplies of irrigation water. b)   To check water logging, increase in conjunctive use of canal and groundwater was suggested. c)    Rising of embankments in naturally depressed spots to serve as reservoirs to collect rainwater and inundation. d)    Congested water in southern part of the zone needed consideration for development of drainage system that could discharge excess water. Development of irrigation potential was vital in the sub-regions of Barind and Rash Plains and the following actions were to be taken deepening of about 10 lakh Small tanks to add to their storage capacity Excavation of about 1 .50 lakh dug wells to generate irrigation potential and employment during the eight plan. In rice cultivation, selectivity with reference to land capability would be an important element of the development strategy for this zone. Once the drainage, flood and irrigation problems were attended to, the crop production strategy envisaged diversification from rice monoculture in most of the areas. Thus: a)    Area under HYV Kharif rice and rabimix should be enhanced by 15 percent. b)    In upland rainfed areas, instead of rice high value crops like groundnut and arhar should be introduced, especially in Rash plains. c)    Crops like mung and “‘groundnut in Kharif and gram and peas in rabi, under irrigated conditions, should be increased in uplands. d)    Evolution of early maturing varieties of rice would make areas available in lime for mustard cultivation. Sunflower and safflower in rice fallows were more suitable for saline areas. 13.4.3 Eastern Plateau and Hills Region (Zone VII) This is one of the most backward and poor region of the country. It consists of the plateau and hill-areas of the eastern district of VYB* nine districts of Orissa, nine districts of MP, twelve districts of Bihar and western districts of Maharashtra. It is a plateau region with undulating hills and slopes. The cropped areas as well as population densities of this zone are lower than the national average, its agricultural input and productivity levels are much lower than the national average. In ‘such’ type of zone, an emphasis on crop planning and extension would be of little significance. Land and water development strategies of an appropriate kind were advocated to avail of anticipated benefits in time during the Eighth plan. Minor irrigation works include renovation of existing tanks and excavation of new tanks. The integrated watershed development programme included water harvesting/ storage structures aimed at rainwater conservation to be used for lifesaving irrigation which has been found to make tremendous difference in output in dry land crops. Once a more optimal land and water development strategy was developed,’ a new cropping pattern could be envisaged. The following action points were proposed: (a)    seed supply was to be strengthened so as to cover large areas with quality seeds of HYV. (b)    In upland rain-fed areas high value crops could be taken up. (c)    Crops like urad, castor and groundnut in kharif and mustard and vegetables could be taken up under irrigated areas. (d)    The proposed cropping sequences based on research findings for irrigated and un-irrigated conditions were suggested. The scope for extension of fruit plantation existed, in all sub-zones. Adequate provision would need to be made for institutional support for planting material and scientific extension support. A forestry, animal husbandry and fishing programme was suggested. In fact, one advantage of agro-climatic planning is that it builds up investment infrastructure options for alternative agricultural and fanning systems and thus removes the shortcoming of a favoured crop/region approach say, wheat based in canal irrigation. Also the locked up resource potential of different regions which can be released with marginal investment becomes feasible. To diversity and stabilize the earnings of the farmers, there is a need to strengthen the livestock sector— mainly milk cows and buffaloes, sheep’s goats, piggery, poultry, fishery and bee keeping enterprises may suit more the landless rural households. Zones I, II, VII, are relatively more suited for forestry and horticultural crops due to heavy rains. In the coastal zones (XI and XIII), fisheries need to be given a big boost; Simultaneous efforts are also needed to establish agro-processing units and to improve’ market infrastructure. 13.5    Basic Concerns Underlying the ACRP Approach. It is important to take note of the three basic concerns underlying the ACRP approach. First, while the agricultural technology achieved a breakthrough in the production of a few crops by concentrating on the fertile irrigated areas and on the relatively better-off groups of farmers, ACRP focuses on the far more difficult task of sustained rise in growth by helping all the areas including the backward and stagnant areas to activate, the growth processes by utilizing the area specific resources and opportunities. Second, considering the crucial place which the district plan occupies in ACRP, the emerging system needs a double adjective ”liberalized-cum-decentralized”—to describe it. In this system, the government would transfer decision- making functions not only to markets and private enterprise but also to people’s organizations like PRJS and voluntary organizations. The working and dynamics of the system would depend on the behaviour and relationships among these entire four groups plus the government. Third, ACFP approach stresses the principles of comparative advantage, cost effectiveness and economic viability. These principles would apply only when markets are competitive, are left free- to reflect the changing .supply and demand conditions and the prices get determined in such markets. When growth begins to spread to areas with weak infrastructures, tenuous links with mainstream economy und modest surpluses to sell, it is very likely that market in such areas take time to develop the point, where they could function with the requisite degree of It would be a tough test for ACRP in making the transition from an experimental programme on probation to a continued reutilized system shouldering the responsibility for agriculturist al planning. A number of difficult problem has to be tackled viz., Co-ordination among, government departments; establishing working relations between people’s representatives and bureaucrats; reconciling people’s demands and expectations articulated through bottom-up plans with resource availability and other systematic constraints indicated by top-down planning, etc. | | Table 1. Salient Features of Agro-climatic zones delineated by the | Planning Commission__ | | |---|---|---|---| | Zone No. | Name of Zone | Slates represented | No. of | No. of | Geograpic | Population | Rainfall | NIK | Major crops | | | Suhans | Districts | area (Ians) | Density | range (mm) | use | of the zone | | | | 0) | (4) | (3) | (6) | (7) | (8) | (9) | (10) | | (I) I | Western Himalayan | J&K. H P UP | 3 | 34 | 246 | 62 | 165-2000 | 23 | W.W.R.P | | n | Region Eastern Himalayan | Assam, WB, Manipur, meghalaya, | 5 | 58 | 275 | 126 | 1840-3528 | 9 | R.M. Ju. | | | Regions | Arunachal, Nagaland, Tnpum. Mizoram | 4 | 12 | 69 | 684 | 1302-1607 | 65 | R.J.W. | | in | Lower Gangetic | WB | | | | | | | RLM | | IV | Plain Region Middle Gangetic | UP. Bihar | 6 | 38 | 170 | 531 | 1211-1470 | 68 | R.W.M | | | Plains Region | | | 32 | 143 | 464 | 721-979 | 86 | W.R.M.T | | V | Upper Gangetic | UP ' | | | | | | | | | VI | Plain Region - Trans Gangetic | Punjab, Haryana, Ragashan Delhi | 3 | 27 | 125 | 329 | 360-890 | 105 | W.R.MS | | » vn | Plains Region Central Plateaus Hill | Maharashtra, M.P. Orissa, WB | 5 | 34 | 395 | 136 | 1271-1470 | IS | R.W.M,Ra | | 3» vm | Region Central Plateaus Hill | M.P. Rajasthan, UP. | 14 | 46 | 376 | 137 | 490-1590 | 16 | W.GJ.R.B | | IX | Region Western Platean & | Maharashtra. M.P., Rajasthan | 4 | 34 | 332 | 189 | 602-1040 | 28 | JB.C.W | | X | Hills Region Southern Plateau & | Karnatka, AP. TN | 6 | 35 | 394 | 199 | 570-1001 | 57 | J,R,Ra, Gr | | XI | Hills Region East Coast Plains & | Orissa, AP, TN. Pondicherry | 6 | 25 | 193 | 321 | 780-1267 | 77 | R,FrJ