Agriculture has always been a very significant element of every country’s economy more because it paves the path towards development rather than because it contributes significantly to the economy’s GDP. All countries, in order to develop, had to go through the process of commercialising agriculture to be able to fund the development of the secondary and eventually the tertiary economic sectors, thus making agriculture a key segment of the economy when it is in its development stages. This can be clearly seen in the way the agricultural revolution from the 16th to the 19th century in Britain, kick started the industrial revolution, which led Britain to becoming the economic power it is today. What is important to notice however, is that after the industrial revolution became a global phenomenon, agriculture became less and less significant in yielding income for global economies, so now it only makes up 5% of the Gross World Product .
In order to understand why agriculture’s importance declines throughout the development process it is instrumental to understand the importance agriculture has in the first place. In the Chinese drive towards development, for instance, the main reasons the government used agriculture to guide its development were the need for self-sufficiency, the need for an improved standard of living, especially in the rural areas and the necessity of agriculture as a means of modernising the economy. In the British drive towards development, agriculture had also a very important role, as it succeeded in maintaining the British population increase that had occurred in the 1750s. As result a significant percentage of the labour force previously occupied in the agricultural sector was freed and demand for goods rose.
As the economy develops, the need for self-sufficiency that is satisfied by having a strong agricultural sector becomes less and less important, which is one of the reasons why the role of agriculture declines. There are two main reasons for this, firstly because the country no longer needs to raise money to fund its industrialisation drive and secondly because once the country has developed its industry it can use the income generated there to import the goods it needs and can’t produce domestically. For example, in Stalinist Russia, the agricultural population was forced into collective farms so that Stalin had enough to feed his industry workers and import industrial goods. So we see that agriculture stopped being an end in itself but rather was the means by which Stalin chose to achieve Russian industrialisation. Indeed, as countries develop we observe a trend for people to move to big cities to work in the industry, mainly because once the agricultural sector becomes commercialised labour is freed fo r other posts since farmers become more productive and have a marketable surplus. For example, in America in the early 20th century 1 American farmer fed 2.5 people whereas now he feeds 130, thus enabling the freed labour to work in the industrial sector. As a result agriculture becomes a less important sector of the economy both because it occupies fewer people and because it because it yields comparatively less income for the nation.
Also as economies develop agriculture stops being the means for people in rural areas to achieve a better standard of living because they can specialise in the jobs they are most efficient at. Another option, as the model by Michael Todaro describes, is if expected life time earnings in the city exceed potential rural lifetime earnings and the cost of moving, many people working in the agricultural sector will try to improve their living standards by moving in the city. As a result agriculture stops being the population’s main source of income, because provided there is high labour mobility, they can move to another job they do better and earn higher incomes there. So as economies develop and as agriculture becomes industrialised new jobs are created in other sectors and subsistence agriculture stops being the optimal behaviour for the less efficient farmers.
Moreover, once a country has developed, agriculture stops being a key to modernise the economy because the funding for this modernisation comes from other sectors that bring to the country comparatively higher incomes. For example if you consider that the agricultural industry in Britain yields just as much GDP as its footwear industry it seems rational to say that if the government wanted to raise money for modernisation, now that agricultural development has launched the development of the other sectors, they can use the higher profits earned there. Because agriculture is a very primitive industry, its output has very little to do with the development of technology or the modernisation of the economy after a certain point so the governments turn to the industrial sector to achieve such modernisation.
Finally once an economy has developed, there is no need to rely on agriculture as a means of sustaining a country’s population because the farmers have the ability to produce more and the emergence of jobs in other sectors enables people to buy agricultural goods, without having to work in the agricultural sector. For example in Canada, only 2% of the population is employed in the agricultural sector and that is enough both to feed the Canadian population and to afford imports of other goods thus enabling Canada to maintain its population.
According to Subsistence and Economic Development, the development of agriculture contributes to economic development in four major ways. Firstly, only through such development can a country assure that it won’t go through periods of starvation or “peacetime famines” . This is because breakthroughs in ways of improving agricultural production, such as those seen in the Green Revolution, can enable farmers to produce more and thus feed a greater amount of the population using fewer resources. As a result, we see that it is essential for agriculture to develop so that labour and factors of production are freed to be used in other sectors. It is only through this development that people will be able to move to other sectors because if agriculture remains at a subsistence level, they have no other way of assuring that those who do move to the industry will have enough food to survive and thus such a movement carries a great risk for them.
Another important role of agriculture identified in the book, is that the food surplus it generates is a source of political stability because only through achieving a certain extent of self sufficiency can a nation consider itself stable enough to foster an industrial revolution. This is because such a revolution requires steady funding throughout time that can only be assured by having an agricultural sector that steadily produces enough food and generates steady incomes.
Moreover agriculture is very significant within an economy because it is a country’s means of feeding its workforce and it is only by giving people in the industrial sector security over their food supply that they will take the risk of leaving their jobs in the agricultural industry and move to the city. This is why in Stalinist Russia; Stalin continued to send most of the agricultural production to the cities even though it caused famines in the rural areas such as Ukraine. He wanted to assure that as many people as possible had moved to the industry and had enough food so that they remained efficient.
Finally, the food that will be used to feed the workers must be produced domestically because if there isn’t a food surplus, capital that would be otherwise invested in technology or education will have to be invested in importing food to feed the labour force and the country’s population and thus will slow down the nations development drive.
The significance of agriculture in initiating economic development is what led the economist Nicholas Kaldor to say “it is no accident that in England, as elsewhere is Europe the so-called agricultural revolution historically preceded the industrial revolution. Part of the reason for this is that as economies develop and people gain greater incomes they spend smaller percentage of it on good. This is why even though agriculture is essential for a country to develop, after a given point in time, because demand for agricultural goods is income inelastic, fewer people need to be occupied in the agricultural sector because economic activity stops being about providing the population with the means to provide but it becomes about creating greater varieties of goods and services to satisfy other wants.
To sum up agricultures relative importance declines in an economy because it’s mainly used as a means to achieve development of other sectors. Agriculture contributes to the economy’s development by feeding the population during the development process and raising money to buy inputs for other sectors. Finally using the examples of Stalinist Russia, the Chinese economy and the British economy we have seen how agriculture after its commercialisation gradually becomes of less and less importance to a country.
1st part: talk about triangle of food population and growth. The introduction of technology in agriculture helps increase food per capita which eventually leads to growth. With introduction of technology productivity of farmers’ increases, which creates a labour surplus that can move to other sectors thus increasing economic activity and leading to trade creation. There is income inelasticity of demand in the food sector which means that the proportion of change in demand for food is less as income increases. Agricultures terms of trade (within the economy PF/Pother goods) declines as the economy develops, price of food falls and price of other goods rises which is why the agricultural sector eventually declines.
2nd part: the food produced contributes to the economy’s overall product. Agriculture contributes in terms of factors like labour and capital that during the development process get transferred to other sectors. At the early stages of development agriculture is the only way for people to accumulate income. Agriculture also creates the basis for market formulation at the early stages of the economy. The only way for an economy to gain foreign reserves is by exporting its agricultural produce.
3rd part: food product is reduced. Importance of labour and capital contribution will decline. Each farmer will make higher incomes when the economy develops but contribution to GDP will decline. Agriculture will no longer be the dominant sector so it’s less important in the market (the ratio LA/LTOT will decline as more people will work in the secondary or tertiary sectors). Agriculture is the main way for developing countries to get foreign exchange but for developed nations, foreign exchange from agriculture will be reduced.