ACET Blog

By Professor Douglas Gollin[1]

In this essay Douglas Gollin, Professor of Development Economics at Oxford University and Visiting Scholar at ACET makes the point that while Africa’s cities are undergoing remarkable growth, rural areas remain poor and large numbers of farmers continue to produce primarily for their subsistence. But if urban growth is not sufficient to drive an economic transformation in rural areas, then what kind of rural or agricultural transformation is needed? You can watch a podcast video by Professor Gollin on the same subject here.

ACCRA; July 26, 2012: I made my first visit to Ghana in 1988. At that time, my wife, Cheryl Doss, was working in Liberia, and we came together for a two-week visit to Ghana. I vividly remember Accra at that time. There were open fields in what is now Airport Residential Area, with people herding sheep and goats. The 37 Military Hospital-Legon road passed through an undeveloped area. It was still very much the same when we brought our older son to Ghana in 1995; he was barely two years old. He learned that he could get a laugh by telling everyone that his name was Kwesi James… and he wanted desperately to drive a tro-tro. He’s now 19 and a university student, which of course makes me feel very old!

So much has changed since then. Sitting in Accra, the changes are large and visible. Those undeveloped areas are now full of highways, flyovers, a mall, new houses and office buildings.  This same urban growth is visible everywhere in Accra, as in Kumasi or, from what I understand, in Tamale, where we’re headed later this month. When we were first there in 1988, Tamale was a sleepy town where people rode horses into the town center, and where herds of goats roamed city streets.

In fact, you can see much the same thing in many of Africa’s cities… Not just Nairobi and Dakar, but also Kigali, Kampala, Luanda, Lusaka, Maputo and Monrovia.

Much less change has taken place, however, in Africa’s rural areas.

Two years ago, I visited a set of villages in Ghana’s Ashanti and Brong Ahafo regions with my colleague Francesco Caselli from LSE. The striking thing about those visits was how little the villages had changed from what I remembered in the mid 1990s or the late 1980s.  A few hundred kilometers from Accra – maybe less – these villages looked as though they had not experienced any consequential growth in living standards for a quarter of a century.

Rural living standards seem to have changed relatively little in that time. I say “relatively” because there are clearly and demonstrably changes in living standards. Electrification is more widespread, and mobile phones are ubiquitous. A number of health and education measures have continued to improve. But still, to an overwhelming degree, rural people are making their living from quasi-subsistence agriculture.

Rural areas remain poor, and the economic changes there have been far less visible and dramatic than the changes in urban areas. There are now commercial farms all across Africa, producing pineapple and other tropical fruits for export; cashew nut; cut flowers; vegetables, and long-term crops: cocoa, coffee, sugar, cotton, groundnut.

But why has change come so slowly in rural areas? Why has agricultural transformation proved so elusive? What, indeed, would an agricultural transformation look like? Can agriculture contribute to an economy-wide transformation? If so, what are the ingredients needed to make it happen? On the flip side, what are the constraints that keep so many people living in rural areas and producing essentially for subsistence?

If you’re hoping for answers from me… I’m sorry! These are very difficult questions, and I don’t have the answers. However, these are some issues I’ve been researching on. I know there are others here, elsewhere in ACET and in Ghana), who have thought about these issues for a long time. They are not, after all, new questions. They are some of the oldest questions in development economics, going back to T.W. Schultz , Arthur Lewis and their contemporaries.

In my view, we don’t have the models and tools needed for answering those questions yet – not completely, at least, and not rigorously. I see this as an exciting area of research and sometimes think of it as the macro dimensions of agriculture and development. In the past ten or fifteen years development economics has moved heavily in the direction of microeconomics and experimental economics. I think there is still room for good macro-oriented research. By “macro”, I do not specifically refer to research that looks at fiscal or monetary policy or that focuses on the central bank – or central government – as the actors

I use the term “macro” in a broader context that reflects my own background as a Minnesota-trained macro economist; research that takes general equilibrium effects and perhaps (though not necessarily) dynamics seriously.

So let me tell you, very briefly, about a couple of my current research projects and what I think are some of the central questions that we are trying to answer.

Agriculture and Transformation

The two questions that preoccupy me at the moment are closely related. First, how important is agriculture for economic development; more specifically, is agricultural development necessary for economic growth? Second, is economic growth sufficient to achieve a transformation of the agricultural sector?

Let me start with the second question; I think that one is easier. Ghana’s example, along with many others, suggests to me that urban growth by itself is not sufficient to generate a transformation in rural areas.

In spite of 25 years of rapid urbanization, rural areas remain poor and large numbers of farmers continue to produce primarily for their subsistence. True, there has been a growth in non-traditional exports, and some people are doing very well in export agriculture; but urban demand does not necessarily link strongly to rural development.

One reason for this is that urban residents consume different diets than rural people, and a large fraction of their food comes from imports. In Ghana, urban consumers – and not just obruni – seem to prefer rice, wheat, dairy products, processed foods, and a range of other products imported from international markets. Similar evidence comes from other African countries.

If urban growth is not sufficient to drive an economic transformation, then what kind of rural or agricultural transformation is needed? Let me start by asking what an agricultural transformation might look like.

The end result of the transformation is almost certainly a smaller number of people working in the agricultural sector, producing on a more commercial basis for both domestic and export markets. Average farm size will be higher; implying a substitution of capital for labor, because there are limits to how much land anyone can farm with hand tools. I envision a transformation as a change in markets, market structure, and in technology; an increase in capital per worker and in the use of intermediate inputs; and most likely also a change in the average farm size – defined in terms of management scale, rather than ownership.

Avoiding the Mistakes of the Past

How does a transformation like this occur? One old idea is that the government should simply support or subsidize the development of large commercially oriented farms. The crudest form of this idea is that government should itself create large-scale farming schemes. Much of Africa pursued this in the 1960s and 1970s, and I think this has been widely discredited.

Other variations persist, and some can have a certain logical appeal. Examples of this kind of policy include:

• Subsidizing credit for large commercial farms
• Providing large farms with preferential access to inputs or technology – whether tractors or new seed varieties
• Deliberately starving small farms of support services, such as extension, on the grounds that “they won’t take advantage of it”

The problem here is that we don’t know very well today what the agriculture of the future will look like or where it will be located. If you make public investments today that are designed to support existing large commercial farms, you are gambling that the farms today are in the locations and producing the same crops as the farms of the future.

I have not seen any evidence that suggests that governments should focus on farm size directly; instead, it looks as though it makes more sense to let farm size be an outcome.

Driving Forces for Transformation

What then will be the driving forces in promoting agricultural transformation?

One will be the development and diffusion of improved agricultural technologies. Although people talk about this a great deal, agricultural technology improvements have come slowly in Africa, and we have very limited data on the diffusion of improved technologies. In many ways, Africa is late in developing research capacity, and many crops and commodities had very little research effort until the past 10 or 20 years. There is a lot to do here, and arguably not much to show for it yet.

A second driving force in agricultural transformation will come from appropriate investments in public goods. These include:

• Roads and infrastructure

I am personally interested in how physical connectivity is linked to economic activity. To a large degree, rural areas in Africa are in autarky because it is very costly to move goods – including agricultural inputs and outputs, but also non-agricultural goods – to/from rural areas.

• Electrification

This will be particularly important for agricultural processing and post-harvest uses of crops and livestock. It will be valuable for the emergence of dairying as it allows cooling and makes more efficient collection schedules possible. It is difficult to envision a modernized agricultural sector that does not involve rural electrification.

• Irrigation

This will only be a public good in some places. (In other locations, it may be a purely private good.) But irrigation has the potential to transform agriculture in lots of locations, both by increasing productivity levels and by reducing the degree of weather risk to which farmers are subjected.

• Policies to promote competition

In many instances, Africa’s rural areas face a high degree of isolation, and this not only drives up costs, but also opens the door for non-competitive behavior of various kinds. With rural markets spread thinly and handling low volumes, there is often a high potential for market traders to set prices for both farmers and consumers. Recent literature also documents non-competitive behavior in the transport sector in many African countries (especially on long-haul and cross-border routes), and studies have also shown the effectiveness of information technology (ICT), such as mobile phones, in stimulating competition.

• Property rights

The vexing question of land rights, land registry, and the formalization of land markets remains relevant in many countries. Tenure security is necessary for farmers to have the correct incentives to invest in long-term land improvements, but in most parts of Africa, cadastral surveys are lacking and formal programs of land registration and titling have not advanced far. Customary systems of property rights provided adequate security for traditional agricultural systems, but it is not clear that these customary systems of land and property rights can provide the types of tenure security required for agricultural transformation. On the other hand, Western-style land titles and markets cannot be introduced without doing violence to existing economic, social, and cultural arrangements. I have no insight as to what should be done here, but I think that much more research is needed on property rights regimes and on the reshaping of land and property institutions in Africa.

Conclusion

In my view, the research agenda related to agricultural transformation is broad. There are lots of questions to be addressed, and there is much work to be done.

Let me conclude by saying that I am looking forward to spending the next couple of weeks in Ghana. I know that during that time, I will learn from all of you, and I hope to get better acquainted with those at ACET and elsewhere who are interested in some of these questions.