Growing Indian Agriculture by Leaving Farmers Alone

The Economic Times of India published an article titled “Need policies to ensure farmers get better prices: Arvind Panagariya” last week. Though the article itself is relatively short, it fits into a broader policy debate that is being held in the Indian government. Namely, there has been a lot of discussion recently about whether to tax rural farmers, and if so, how much. The Indian central government does not have the constitutional authority to levy taxes on agriculture, so the debate is focused on a state by state basis, where taxing agriculture is allowed.

The Context

The National Institution for Transforming India (NITI Aayog), the leading think-tank in India, and India’s prime minister, Narendra Modi, have stated a goal of doubling agriculture income in India by 2022. Supporting technology adoption and ensuring competitive prices domestically and internationally are the main intended methods to achieve this growth. While India’s economy has developed significantly in recent years, its poorest citizens are still largely living in an undeveloped economy. According to Arvind Panagariya, “80% of the poor… in rural areas are dependent on farming.” In addition, it appears that most farmers in India rely on agriculture for subsistence.

NITI Aayog leaders and the prime minister have been asked about taxation of agriculture income in India. Almost unanimously, policy leaders have stated that there is not even a question of taxing agriculture income. However, most reports do not give a complete picture to the phrasing of “no question” when it comes to taxing farmers. Do they mean that it is obvious a provision will be included to tax farmers in the future, or that it is obviously a bad idea to tax subsistence farmers and the rural poor.

In a separate report, the Chief Economic Advisor, Arvind Subramanian, suggested that taxation of agriculture income is possible. He added, policymakers must make a distinction between rich and poor farmers.

The Model

Luckily, there are clear models that address production and wealth gains over time. Depending on the structure of the tax, a farmer would consider it as a fixed cost or a variable cost in their production function. In a developing economy, we must also realize that any money a farmer has to pay to the government cannot be used to re-invest in their farm, either as better inputs or durable goods. When analyzing this issue, it is important to make the same distinction that Mr. Subramanian did. Wealthier farmers, or those who have commercialized and see yearly profits, have much more flexibility to be taxed.

Unless state governments face strains, taxing all farmers would make the poorest and subsistence farmers much worse off, since their year on year gains in wealth and potential reinvestment would be undercut. In general, taxing farmers as their income increases from subsistence to commercial would reduce productivity and would be counterproductive to alleviating poverty.

On the most basic level, taxing subsistence farming would push the poorest farmers into a worse position, and would not encourage adoption of new inputs and technologies. In order to commercialize and take advantage of the government’s push to raise prices for agriculture products, poor farmers need access to new technology. We discussed the incentives farmers face when adopting new technologies; they must be educated and the benefits must outweigh the costs.

These policymakers are correct in their belief that taxing agriculture should be out of the question. By taxing agriculture, subsistence and poor farmers face a greater cost or diminished benefit to their yearly yields. In the face of uncertainty, they will be less likely to experiment with new technologies and will not have the resources to try new crops and inputs. The agricultural technology adoption model shows farmers each running experiments over time is the best way to increase their output. By limiting the resources for experimentation, agricultural growth will be significantly slowed, and this effect will compound over time.

Another factor of the agricultural technology adoption model at play in this decision is “information neighbors”. The policymakers aim to increase the prices of crops. In order for their ultimate goal to be achieved, doubling rural income by 2022, the first phase must be giving farmers the means to adopt new technologies. However, the real gains in production are compounded over time as farmers experiment and communicate with their neighbors.

Conclusion

If India’s policymakers are serious about increasing agriculture productivity and income, then taxation is absolutely “no question”. In a country like the United States, where industrial agriculture is the norm, taxation is possible because of the surplus that farmers face. However, in India’s case most farmers need to be nudged into commercialized agriculture and educated about the new technologies available. In order to achieve this, the whole system should be tailored toward the goal. Also, based on NITI Aayog’s statistics, increasing rural income can benefit a huge portion of the impoverished population in India as well. Based on these facts, Indian policymakers have made the right decision for ensuring growth of agriculture output.

 

 

Sources Cited:

http://economictimes.indiatimes.com/news/economy/policy/need-policies-to-ensure-farmers-get-better-prices-arvind-panagariya/articleshow/58432724.cms

http://economictimes.indiatimes.com/news/politics-and-nation/bjp-to-promote-pm-narendra-modi-govts-pro-farmer-policies/articleshow/57918815.cms

http://economictimes.indiatimes.com/news/economy/policy/no-question-of-taxing-agriculture-income-arvind-panagariya/articleshow/58424238.cms

Image:

http://www.newsgram.com/what-indian-agricultural-sector-needs-to-learn-from-denmark/

 

When There Is Not Enough Credit to Go Around: The Challenges of Accessing Microcredit in Myanmar

As financial regulations lax and with the entrance of more nongovernmental organizations into Myanmar, microfinance and the availability of microloans have made it much easier for citizens of Myanmar to gain access to credit that they would not otherwise have access to. However, the demand for credit is far greater than the current supply. Currently, over 2.8 million clients have access to microloans in Myanmar. As that number continues to grow, credit constraints, the lack of credit availability, and the lack of financial literacy has made it difficult for people who need credit the most to access it. (The World Bank)

An article from the Myanmar Times published on March 1, 2017, Agricultural Sector and SMEs to Receive Private Bank Loans, talks about recent policy changes implemented to help farmers and small business owners. With the intervention of the Myanmar Private Sector Development Committee (PSDC), the committee has passed into law that private banks in Myanmar must grant a minimum percentage of all their commercial loans to people in the agricultural or SMEs (Micro, small, and medium-sized enterprises) sectors (Htwe.)

The current Agricultural Minister of Myanmar, Myint Hlaing, has stated, “The agricultural sector is the backbone of Myanmar’s economy as the entire agricultural sector contributes 30% of its current GDP. In addition, 61% of the country’s labor force is working in the agricultural sector” (Centre for Agriculture and Bioscience International.) Since agriculture is such a large part of the Myanmar economy, it is understood that additional funding and capital is required for the industry and economy to develop.

As of now, microloans are only made by state-owned banks. Local private banks rarely lend to local borrowers because of the lack of profitability and high risks of lending. Many of the private citizens who require microloans do not have the collateral nor credit history to justify receiving a loan, and laws set by the government cap the amount of interest that private banks can charge on these private loans (13%.)

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(The World Bank)

The state-run banks currently charge an 8.5% interest rate and an 8% interest rate to SMEs and farmers, respectively. Should a borrower go to a private bank, they would be charged a 13% interest rate. Currently, it is unfeasible for private banks to
match the interest rate of the state-run bank, as they pay 8% interest rates on banking deposits (Htwe.) The main issue here, is deciding upon interest rate that would satisfy the state-run bank, the privately-owned bank, and the borrower.

With the passing of the 2016 Monetary Law, banks are no longer required to collect collateral when deciding who to give loans out to, but that just makes the vetting process more difficult. Despite the law, many private banks still require collateral as they cannot thoroughly vet borrowers, and many banking relationships in Myanmar are built on trust and reputation (Htwe.)
U Thein Myint, a deputy general manager at one of Myanmar’s privately-owned banks argues that, “If people fail to pay back their loans, the banks will encounter difficulties in paying deposits from its customers. This is detrimental to the financial system and the national economy. Therefore, for people seeking bank loans, they need to provide strong guarantee.” Until there is a proven high chance that commercial banks will be paid back, loans provided for the agricultural and SMEs sectors will remain low (Htwe.)

A retired vice president of the Myanmar Central Bank, U Than Lwin, hopes that the government can work out an arrangement with private banks so that money can be lent to people who need it the most. A proposed idea would be for the government to implement a system so that they can partially guarantee loan repayment, which would make the lending process for banks much easier. Another idea would be to mitigate risk by lending to a larger group of people, by spreading the amount of risk that people would take on when taking out a loan.

Some of the issues described in the article written by Chan Mya Htwe regarding microcredit are also issues seen in countries struggling to meet the demand for microcredit by their citizens. This is amongst one of the many challenges encountered for governments or NGOs implementing a microcredit and microfinance program in a developing country (Schaffner.) In a country where access to finance is difficult and people are spread out across rural areas, there is adverse selection on both sides for both the borrower and lender. Lending caps and inconsistent lending practices make it hard for borrowers to access loans. This usually results in a loan from multiple financial institutions or a loan shark (Schaffner.) The inconsistent income that depends on the planting and growing season along with the lack of good jobs makes it difficult in certain cases, for people to pay back their loans. With the new law instituted by the government preventing banks from collecting collateral on loans, the end result is an inefficient outcome where the borrower does not get the money they need for their everyday life and the lender just makes loans elsewhere where the financial institution knows they will be paid back.

Private financial institutions need a new way to thoroughly vet prospective borrowers if they cannot collect collateral beforehand (Htwe.) There is a possibility of lending to large groups and spreading out risk through group liability, but in every borrowing and lending situation, I feel that the lender assumes a lot more risk than the borrower.

The first microloan programs were first instituted in Myanmar in the mid-1990s (Soe.) As new laws are passed and as regulations become more lax, there have been an increase in NGOs in the country, making small loans to farmers and small business owners. The exchange rate, interest rate caps, along with high denominations in its currency discourage more NGOs coming in (Soe.) As the program continues to grow, I hope that microloans and microfinance can reach people in areas that still are not developed, or destroyed by the ongoing Civil War. I think that the Myanmar government needs to do more for its citizens, rather than rely on outside humanitarian organizations to provide a basic lifestyle for people who need it the most. This is a difficult problem that I feel would not be solved anytime soon, as lack of financial literacy in its citizens, lack of access to large amounts of credit, and lack of willing lending institutions keeps people stuck in the cycle of poverty.

References

Schaffner, Julie. Development Economics. N.p.: Wiley, 2014. Print.

Ray, Debraj. Development Economics. N.p.: Princeton UP, 1998. Print.

C. (n.d.). CABI and China boost agricultural development in Myanmar. Retrieved May 09, 2017, from http://www.cabi.org/membership/news/cabi-and-china-boost-agricultural-development-in-myanmar/

Tun, T., Kennedy, A., & Nischan, U. (2015). • Promoting Agricultural Growth in Myanmar: A Review of Policies and an Assessment of Knowledge Gaps (No. 230983). Michigan State University, Department of Agricultural, Food, and Resource Economics.

Htwe, C. M. (2017, March 01). Agricultural sector and SMEs to receive private bank loans. Retrieved May 09, 2017, from http://www.mmtimes.com/index.php/business/25141-agricultural-sector-and-smes-to-receive-private-bank-loans.html

Soe, H. K. (2016, September 06). Can microfinance still make a difference? Retrieved May 09, 2017, from http://frontiermyanmar.net/en/can-microfinance-still-make-a-difference

Farmers’ Utilization of Drones in China: New Solution to Labor Shortage

Utilization of agricultural drones in rural China increases farmer’s productivity.

By Yiwen Sun

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Reported by South China Morning Post, earlier in 2017, farmers in Ji County, Shanxi Province in China hired drones to spray pesticides over apple orchards. These drones were equipped with tanks of pesticides attached to the belly, then flew over paths calculated and controlled by operators on site remotely. They achieved an efficiency of spraying one orchard in 10 minute, which was 15 times more efficient than manual labor, while the cost was 1,000 Yuan ($145) lower than hiring farm labor per hectare (2.47 acres) of orchard. (Chen, 2017)

Due to China’s fast-growing economies, big cities such as Shanghai and Shenzhen attract young labor from rural areas of China, creating a large labor shortage in the farming industry. The basic structure in the rural areas of China remains family owned and operated small farms with small plots of land, and farmers in neighboring areas tend to plant similar products due to the similar land and weather conditions. For example, Shanxi Province mentioned in this new article is famous for its apple production. By doing this, the local farming industry can be better organized on a county or village level, and it is more efficient for farmers to adapt to new technologies. Liu Xinzhu, a 60-year-old farmer in Ji County, Shanxi Province told Xinhua News with his son working in the big city, he could not take care of his one hectare of apple orchard by himself. (Chen, 2017) The cost of hire labor on farmland was high due to labor shortage in rural areas as well.

Production Model and Technology Adoption

The classical production function model is a function of output given labor and capital. In the short run, farmers do not purchase equipment just for a short-term use, and capital is relatively fixed. Through contacting and hiring drone operators or receiving trainings, farmers may face a small up-front cost of utilizing drones, while the ongoing costs will only be the rental fees during pest control each season. As mentioned previously, with the same amount of labor, drones are 15 times more efficient than labor. This huge increase in output can be reflected by A’ to B’ in the graph below. Aside from high productivity, agricultural drones also save 30 to 40 percent of pesticides, which is efficient for the family owned and operated small plots of land in the rural areas of China (Jiang, 2016).

Technology-in-Output-per-Worker

*Output=F (K, AL) shows an increase in productivity of labor with technology. Picture retrieved from https://snbchf.com/economic-theory/the-long-run/

In the case described in the news article, there is a very high opportunity cost of working on the family farm instead of looking for outside job, such as for Liu’s son. According to China Labor Bulletin, the minimum wage in major cities and province capitals was about 1,600 Yuan ($239) per month in 2016, and it has been rising continuously over the years. Aside from the technology augmented production model, we see an obvious substitute effect between labor and capital in the long run. Without pesticide spraying drones, farmers invest money to purchase other pest control equipment. One of the cheapest type is a plastic tank farmers carry on their back, and farmers press on a lever to spray as they walk, but it is not efficient. It only lasts for a few years, and farmers inhale toxic chemicals along the way. Advanced pest control equipment such as the overhead spray can sometimes cost as much as hundreds of dollars, which farmers in rural areas cannot afford. Instead of investing in capital in the long run, farmers in China now hire drone operation companies for pest control seasonally. Providing only the pesticides, farmers make no investment in capital and no long need to come up with a large sum of money. In this case, farmers can spend money in hiring more units of labor, which are the drone operators, with higher productivity and at lower cost. Overall, farmers shift their spending from capital to labor, and achieve a higher productivity with low health risks, which are a much more efficient allocation of resources.

Future Projections

Described in the news article, government experts in China estimated agricultural drones have a potential to generate 100 billion yuan per year in China. In Shenzhen, there are currently about 200 professional drone operators who offer services to farmers across China. (Chen, 2017) DJI, a drone manufacture company based in Shenzhen, China, is finding a huge potential in agricultural drones. In 2016, the company’s plan was to train ten million people in China to operate drones, and establish a chain of after-sales service. (Schroth, 2016) However, the utilization of drones in general still lacks sophisticated regulations in China. Although some drone regulations were released in 2016, many operations still need to go through tests and paperwork.

References

Chen, S. (2017, April 27). China’s pesticide drones ‘a godsend’ amid rural exodus. Retrieved May 02, 2017, from http://www.scmp.com/news/china/society/article/2091150/drones-godsend-chinas-struggling-orchardists

Jiang, S. (2016, July 25). Drones for agricultural use taking off in China. Retrieved May 02, 2017, from http://www.scmp.com/business/companies/article/1994543/drones-agricultural-use-taking-china

Schroth, F., & Says, T. L. (2016, March 24). DJI Establishing Agricultural Drone Service Network in China. Retrieved May 02, 2017, from http://dronelife.com/2016/03/22/dji-expanding-agricultural-drones-in-china/

Wages and employment. (2016, July 20). Retrieved May 02, 2017, from      http://www.clb.org.hk/content/wages-and-employment

Structural Labor Changes in Sub Saharan Africa Could be the Key to Creating Positive Economic Growth

Empirical analysis of recent data suggests that Sub-Saharan Africa is on track to follow the economic growth paths of developed countries, through a structural shift away from the agricultural sector of labor and a diminishing productivity gap. By: Ben Whitacre

Introduction:

The region known as Sub Saharan Africa (SSA) contains some of the poorest countries in the world, known for its economic failure and astounding poverty rates. In recent years, the dynamic of the economy, particularly in the labor force, has generated the first ever recorded positive economic growth rates in this area. The analysis, “The Changing Structure of Africa’s Economies”, performed by Xinshen Diao, Kenneth Harttgen, and Margaret McMillan, seeks to provide evidence that Sub Saharan Africa is beginning to indicate a shift towards the development track that many successful economic countries followed on their way to prosperity. The authors claim that most of the economic progress comes from a structural change of the labor force: a shift from the agricultural sector, to the manufacturing and service sectors. This shift contributed to overall labor productivity growth, and allowed Africa to experience its “strongest growth in four decades” (Diao et al 20).

Basis and Assumptions:

To adequately analyze the economic trends of rural Africa, the authors chose to utilize two data sets: the Groningen Growth and Development Center (GGDC), and the Demographic and Health Surveys (DHS). Between these, there are varying numbers of observed countries, but the eight overlapping countries are specifically targeted for the data analysis. These countries include some of the lowest income African countries such as Ethiopia, Nigeria, and Tanzania. These are compared to some of the highest income African countries such as Botswana, South Africa, and Mauritius, as well as data groups from Latin American, Asian, and highly developed countries (such as the United States). The purpose behind using developed countries’ data was “to study the evolution of the distribution of employment between sectors across levels of income experienced in Africa and how it compares with the patterns seen historically in other regions over the course of development” (Diao et al 12).

For decades, poverty-stricken areas of Africa have largely focused simply on agricultural labor: providing the basic food for the people to survive. The authors believe that a shift in the labor sectors is leading to a decrease in the magnitude of the labor productivity gap, and an increased prosperity level overall. The heart of the paper focuses on the changes in the “level of employment shares” in each labor sector, corresponding to the “levels of income” (Diao et al 6). The logic behind comparing the levels of the structural sections of labor provides the observer the ability to map out trends of shifts based on previously developed nations.

Several assumptions related to the accuracy and availability of the data collected by both the GGDC and the DHS surveys must be made to observe and compare the economic growth in Africa. The authors point out that employment data, informal labor sector knowledge, and measurements of human capital (well-being, education, etc.) are all taken at the level of detail and availability that the surveys provide. Unfortunately, as seen with many studies throughout research, data which comes from poverty stricken countries is not always reliable, accurate/without error. There are instances where the authors of this NBER analysis exclude an entire group of data, justifying their actions as if generalizing groups will “avoid confounding the results” of the data (Diao et al 28). However, the assumptions in the analysis are justified, as the authors took care to check each set of data, inquire the survey agencies regarding errors they found, and base their analysis of trends on data in which two or more benchmark surveys were always provided.

Analysis:

“The Changing Structure of Africa’s Economies” is based on the hypothesis that structural change in the labor sector distribution has a positive effect on economic growth. The author’s stand by their premise by stating that in developed/prosperous countries, there are very few people who are involved in the agricultural labor sector. Reallocating labor in rural areas into sectors such as manufacturing can have a huge increase in labor productivity, thus “allowing aggregate productivity to catch up…[causing] rapid growth rates” (Diao et al 11). In fact, empirical evidence suggests that according to a “GGDC sample, annual labor productivity grew by an (unweighted) average of 2.82 percent, and structural change contributed an (unweighted) average of 1.13 percentage points to overall labor productivity growth. Put differently, from 2000 to 2010, structural change accounted for 40 percent of Africa’s annual labor productivity growth” (Diao et al 24).As observed in Table 1, for the majority of African countries the labor sector with the lowest productivity is agriculture: with a maximum value of 4.37.

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Table 1: Diao, X., Harttgen, K., & McMillan, M. (2017, January). The Changing Structure of Africa’s Economies

By improving the labor productivity growth, the overall growth rate of the economy increases, poverty rates decrease, and human capital increases by creating skilled workers. The manufacturing sector in Africa may never compare to the manufacturing industry in a previously developed country, but it has been shown that African areas who devote their resources into building human capital to provide skilled manufacturing works generate higher levels of income to raise the poverty headcount ratio at drastic rates. Although some of these labor sectors are specialized and do not have the capacity to bear all structural change, there is a positive observable correlation due to structural transformation ASSUMING the transfer of labor ends up in a more profitable sector. Transfer of labor to a less profitable sector can lead to recession of economic growth. Because of this risk, it is often profitable to look within sectors to make infrastructure changes. Related articles, such as a USDA Economic Research Service report written by Keith Fuglie and Nicholas Rada, indicates that although a transfer in internal-sector productivity may be useful, doubling agricultural research can also boost Total Factor Productivity (which compares total outputs to total inputs in a country) growth rates by over 4%. According to the GGDC data, the initial benchmark revealed low-income countries exhibited an approximate 70% of their labor force was dedicated to agriculture, a number with declined by 9.3% by the time the most recent data was observed (Diao et al 24). This led to an increase of over one and a half percentage points in labor productivity and in some cases, positive country economic growth rates.  Studies in the GGDC data, and the DHS data (categorized by gender, education, age, etc.) showed similar improving results with the decrease in agricultural labor – with the greatest difference being observed with females in rural areas. Figure 1 demonstrates the decline in the GDP level per capita of Agriculture, while contrasting with the increase of GDP wealth per capita in other labor sectors.

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Figure 1: Employment shares by labor sector, increasing/decreasing with income: Diao, X., Harttgen, K., & McMillan, M. (2017, January). The Changing Structure of Africa’s Economies

Conclusion:

Daio, Harttgen, and McMillan chose to analyze two data sets to expand research on Africa’s upcoming economy that had previously never been approached. What they found was that distinct patterns were found in the structural trends that can be compared and adjusted by observing the development paths of previously poverty stricken and underdeveloped nations. In fact, at “lower levels of income, countries that pull themselves out of poverty also exhibit positive structural change” as a critical part of their economic development. Now, not every sector of expansion that prospered in a different country (ex. Latin America) will work in rural Africa, but similar growth concepts, such as the “importance of investing in human capital and infrastructure…can raise productivity levels” and improve a country’s overall state of well-being (Diao et al 32). The authors summarize their findings with 5 stylized facts listed below, which begin to outline growth patterns based on structural shift. The largest implication of this paper however, is to open the door for more empirical analysis and research in sub Saharan Africa, as the authors state that until this point, “economic data to undertake such analysis has been largely unreliable or nonexistent for most African countries” (Diao et al 12).

Stylized Facts:

  • “First, when the patterns of employment in Africa are compared to the patterns observed in other regions across levels of development, the pattern among our sample follows that seen in other regions for agriculture and services—that is, the agricultural employment share is decreasing in income, while the services employment share is increasing in income.”
  • “Second, when the levels of employment shares are compared to the levels observed in other countries, the levels of employment shares in agriculture and services approximate the levels observed in other countries at similar levels of income.”
  • “Third, all of this holds for industry and manufacturing in the eight low-income African countries.”
  • “Fourth, in Botswana, Mauritius, and South Africa, the patterns in industry are similar but the levels differ, and in the case of manufacturing, the relationship between income and employment shares follows more of an upward sloping line than an inverted U-shape.”
  • “Fifth, Africa is still, by far, one of the poorest regions of the world.”
  • “Finally, structural change continues to remain a potent source of labor productivity growth in much of SSA.”

Stylized Facts Courtesy of Daio, Harttgen, and McMillan, “The Changing Structure of Africa’s Economies”.

Works Cited

Diao, X., Harttgen, K., & McMillan, M. (2017, January). The Changing Structure of Africa’s Economies (Working paper No. 23021). Retrieved April 19, 2017, from National Bureau of Economic Research website: http://www.nber.org.proxy-um.researchport.umd.edu/papers/w22872.pdf

JEL No. O11,O4,O55

Fuglie, K., & Rada, N. (2013, May 6). Research Raises Agricultural Productivity in Sub-Saharan Africa. Retrieved April 24, 2017, from https://www.ers.usda.gov/amber-waves/2013/may/research-raises-agricultural-productivity-in-sub-saharan-africa/

Micro Irrigation in Northern India

an analysis of Micro Irrigation and its potential to change agricultural industry in Northern India
By Matthew Terpstra

Micro-Irrigation-System-Post

source: https://www.tes.com/lessons/GFrasG4idfQ0bg/micro-irrigation-image

Farmers in Northern India are in the midst of a water crisis. Due to droughts and over usage of ground water supply farmers are faced with decisions to make about their irrigation technology.  Northern India is home to some of the largest farms in the nation, which are responsible for the growth of some very essential foods. The state of Haryana, located in Northern India, has come up with an idea to require farms within 36 of their blocks to begin using micro irrigation. This change could help India’s agriculture in more ways than one, “This shift in the irrigation system would not only help in maintaining eco-balance but also lead to energy conservation” says the Economic Times Bureau.

 

Micro irrigation is an alternative technique to get water to massive amounts of plants throughout a farm. It has many benefits as well as costs associated with it. Along with more efficient use of water while simultaneously minimizing pests and diseases within each plant. It also allows for specialization among plants of different ages. For example, newer plants might require more water than older ones and micro irrigation allows you to spray more water on the roots of newer plants and less water on that of the older plants. Yet micro irrigation has some downsides, to start, it costs a lot of money to run the pipes through each row of plants. Additionally, it requires a lot of maintenance, the various filters within the system must be cleaned and replaced periodically. In order to make this program worth it for the many farms in the state of Haryana, the government has decided to provide incentives to farmers who take up this new technology.

 

India’s agricultural industry has been facing various issues with their agricultural expansion. Some of these issues include agricultural productivity, poverty in agriculturally based communities, and environmentally friendly sustainable solutions to agricultural productivity(WorldBank.org). Micro irrigation could be the solution that India needs to solve these issues. An inspiring story of a farmer in Southern India using micro irrigation provides farmers in Northern India with hope. The District Collector in the area credits micro irrigation to the success of this farm, “If it can improve yield and also cut on costs, nothing like this facility” (Nadul). Even with these facts it is unknown whether or not farmers in these 36 blocks of Haryana will use the technology.

 

Take Up of technological advancements

 

It is difficult to know whether or not farmers will take to this new technology. Throughout history it is evident that farmers will only use new technology if they are clear of the costs and benefits of the technology. Since the farmers will be heavily subsidized by the government they may be able to get a larger take up on the technology. Yet they may still face issues with take up due to the complications of micro irrigation. Because the plants require far less water they run on a system and this system may be too complicated for the average farmer in India to use.  This is where a system of social learning and Target Input Models could be extremely useful to the farmers of Haryana.

 

We also see in various studies in Development Economics that take up of technological advancements in the agricultural industry is extremely low unless farmers see success stories or are able to learn from their neighbors. This is evident in not only stories of micro irrigation but any form of technological advancements. This situation in Haryana is similar to the situation outlined in Conley and Udry. This paper describes the use of a fertilizer on Pineapples in Ghana and how farmers use their “information neighbors” in order to make decisions for their farm. Along with these “information neighbors” farmers use a Target Input Model in order to make a decision of whether or not to use a new technology. This target input model is essentially an outline of what they know about the new technology and how it could either benefit of cost them more in the end. This farmer learns about the inputs that they use once their yield comes in. Like the story in Ghana, Northern Indian farmers could be the lead farmers in water conservation technology.

 

Conclusions

 

The take up of micro irrigation in Haryana could have huge implications to the future of agriculture in India. Micro Irrigation would not only provide a sustainable solution to the growing groundwater problem within the entirety of India, but would also increase crop yield and lower costs for farmers. The people of Haryana need to realize that they are on the cornerstone of an agricultural revolution and could have major implications to the health of farms in the future. The Haryana government has taken a big step in making this a requirement in their 36 blocks and could be leading the charge to more efficient water usage within India. These farmers are in a unique situation from other developing countries, where the classic learning by doing model may not happen fast enough. Farmers must take the subsidies that they can get from the government and implement this system to not only save their farms but also that of many farms in the future.

 

Works Cited

 

India: Issues and Priorities for Agriculture. Retrieved April 24, 2017, from http://www.worldbank.org/en/news/feature/2012/05/17/india-agriculture-issues-priorities

 

Nadu, T. (2012, July 19). Drip irrigation, a success story. Retrieved April 24, 2017, from http://www.thehindu.com/todays-paper/tp-national/tp-tamilnadu/drip-irrigation-a-success-story/article3660659.ece

 

Saving Water: Micro-Irrigation. Retrieved April 24, 2017, from http://www.sjrwmd.com/waterconservation/savingwater/microirrigation.html

 

Times, E. (2017, April 12). Haryana government to promote micro irrigation by providing incentives to farmers. Retrieved April 24, 2017, from http://economictimes.indiatimes.com/news/economy/agriculture/haryana-government-to-promote-micro-irrigation-by-providing-incentives-to-farmers/articleshow/58149242.cms

Greenhouse Revolution in Ghana

A summary and analysis of greenhouse agriculture technology adoption in Ghana by Adwoa Boateng

greenhouse

Dahwenya Irrigation Greenhouse Enclave. Source: http://www.graphic.com.gh/news/general-news/greenhouse-revolution-to-attract-youth-into-agriculture.html

Despite increases in agricultural productivity globally per hectare, productivity levels remain significantly lower in the developing world. A combination of high rates of investment in crop research, infrastructure, and market development and appropriate policy support that took place during the first Green Revolution increased farmers’ prosperity, improved rural employment, and encouraged capitalist farming. Unfortunately, sub-Saharan Africa was the exception to the global trend. Aggregate output on the continent remains low and the prevalence of subsistence farming is high. Climate change and rising food prices continue to exacerbate food insecurities in the region, from northern Nigeria to Somalia.

Is it Africa’s time to experience its own green revolution? Increasing agricultural yields can improve well-being indicators for families and contribute to increases in economics growth. The Youth Employment Support (YES), an initiative by the Ghanaian government, hopes to utilize greenhouses to improve yields, solve the fresh produce shortage, and encourage farmers to adopt farming technologies in the Ghana’s capital, Accra.

YES is building 74 greenhouses and a nursery on a five-hectare land where seeds will be nursed and transplanted. YES will help farmers acquire new skills, through its training program, to use profitable innovate techniques in one of the 74 greenhouses. Collectively, the farmers are projected to produce an estimated 357 tons of vegetables each season (every three months). In the greenhouse, the farmer can plant year-round under high intensive cultivation. The project can reduce the market price of fresh produce in Accra and beyond. The Chief Executive of YES, Mrs. Helga Boadi, hopes that “the prices (of vegetables) will come down because we are not importing and paying duties” (Bokpe).

The YES Greenhouse village is a modern approach to the classical land contract model in development economics. In this case, the farmer enters a fixed rent contract with YES- they are granted loans to operate their greenhouse and pay back the credit after harvest. Since the greenhouse belongs to the farmer after receiving the loan, he will exert effort to obtain the highest yields possible because “the money that comes from your greenhouse is yours, less production cost” (Bokpe). Technical advancements in agriculture, like the YES Greenhouse project, have the “potential to raise aggregate growth rates in the world’s poorest countries” (Shaefer) and the economic model supports this prediction. Empirical evidence suggests that there is an inverse relationship between farm size and productivity. This project allows farmers who operate small firms to pool together to capitalize on the advantages that larger farmers have. One farmer in the village may not have the resources to fund his/her own greenhouse, but the YES Greenhouse project creates the opportunity for individual farmers to benefit from agricultural technology.

Traditionally, technology adoption depends on the target input model. The farmer has basic knowledge on farming practices, but is unaware about the target inputs- water, fertilizer, and etc.- necessary to optimize his output. After the harvest, the farmer observes how close his input or his neighbors’ input usage is to the optimal amount. Overtime, the farmer gains more knowledge on the right quantities of inputs he needs. The YES Greenhouse village significantly decreases the farmers time to discover the target level since the “system delivers just enough water and fertilizer in equal quantities to each plant” (Bokpe). Even though Mrs. Boadi is confident that the YES project will increase farmers’ output, what would incentivize farmers in the community to participate in a greenhouse project or to adopt the lessons from the training outside of his greenhouse project?

Agricultural technology adoption decisions

The simple economic model of technical adoption implies that farmers will adopt technologies, and participate in initiatives such as YES’s Greenhouse, if they are knowledgeable about the costs and benefits of adopting the new technology and the institutional conditions affecting the profitability of the technology adoption. Even if farmers have knowledge on operating a greenhouse, his financial constraints must be limited for him to participate. The project’s training process, especially for younger farmers, will prepare farmers to have successful yields in the greenhouse and utilize them in the future. With hopes that farmers in this initiative will expand their production outside of the greenhouse, information on effective farming practices can spread. Research by Conley and Udry on social learning in the diffusion of a new agricultural technology in Ghana found that farmers are highly responsive to information, so diffusing information on farming techniques in the community will benefit the entire farming network, even those who are not participating in the YES project.

comm learning

Community education in Malawi. Source: http://theconversation.com/how-low-tech-farming-innovations-can-make-african-farmers-climate-resilient-47684

If the greenhouse model in Dahwenya succeeds, how can it be implemented in other regions of the country and potentially across Africa? Farmers learn through social networks, so a communal approach, rather than picking farmers from different communities to work together, may expedite production growth and participation in other greenhouse initiatives. Also, government funding must curb the costs for the individual farmer or provide microcredit loan opportunities, and educate farmers on greenhouse horticulture. The success of the building other greenhouses depends on a constant source of water for the irrigation process. Lack of proper irrigation infrastructure partly contributes to the low agricultural productivity; therefore, implementing greenhouses in regions prone to drought, like northern Ghana, may be challenging.

Africa may be lagging in agricultural productivity and on well-being indicators, but innovative ideas like the greenhouse village can be starting point to another Green revolution. In future projects, the risks and uncertainties in mirroring this project must be considered. Farmers’ ability to bear the risks of the loan to participate in a greenhouse project and his individual risk preferences are critical to his participation. Policy makers must incentivize farmers to take the loan and participate in a greenhouse initiative.

Continue reading “Greenhouse Revolution in Ghana”

Insurance – How Uganda Will Quadruple Its Coffee Industry

An analysis explaining how an innovative style of insurance policy can lead to farmers’ confidence in coffee to rise.

LA REVANCHA: FAIR TRADE CERTIFIED COFFEE ESTATE - NICARAGUA

The government of Uganda is promoting growth of its coffee industry by nearly 400%. Aiming to increase production of coffee from four million bags to twenty million bags, the government is investing in irrigation and subsidizing coffee seedlings to increase interest in growing coffee, a crop often seen risky by farmers because of the unpredictable nature of rainfall in Uganda. NUCAFE, the National Union of Coffee Agribusiness and Farm Enterprises, is promoting crop insurance as a tool to increase interest in growing coffee. Justus Lyatuu of The Observer, writes of NUCAFE’s foray into crop insurance.

Coffee is extremely reliant on moisture and rainfall to successfully grow and mature to a  crop fit for harvest. A slight decrease in rainfall could cause mass coffee crop failure, leading farmers to stray from growing the risky crop. Nearly 65% of crop losses in Uganda are due to drought, and the farmers’ inability to accurately predict weather and effectively mitigate the risks associated with weather leads farmers to devote their resources to growing less risky and less valuable crops.

NUCAFE is encouraging farmers to grow coffee through the offering of crop insurance, which will function to reduce the risk carried by farmers from investing in the production of coffee. Farmers will pay 5% of their expected yield of harvest in the beginning of the grow, and in the event of crop failure due to weather events such as drought, the insurance policies will pay out to farmers near the expected yield of the harvest. Not only does this promote the growth of coffee by mitigating many of the risks of doing so, NUCAFE also will offer education and access to weather information from NASA to allow farmers to more accurately predict weather and mitigate losses from drought.

Index Insurance, How Can It Promote Increased Confidence in Risky Crops?

Index insurance is an emerging form of insurance beginning to become available to those in the agriculture industry, that offers policies to farmers based on weather indexes. Farmers will pay premiums to the insurer, who will in turn, pay out to the farmer in the event of weather conditions suitable for crop failure are met. For example, if the agreed upon conditions for the weather index insurance policy state that if below 15 inches of rain falls in the grow period, then the insurance policy will pay out to the farmer.

Pre-existing forms of crop insurance were structured so the farmer pays premiums to the insurer, and if the crop fails, then the insurance policy pays out near equal to the crop loss.

Index insurance has many advantages over standard crop insurance policies. Because index insurance uses publicly available data to determine if conditions for crop failure are met, transaction costs for index insurance are significantly lower than standard insurance, where claims often result in the insurer needing to inspect the farm themselves, increasing transaction costs. Lowered transaction costs are essential for financial products, and create suitable conditions for private insurers to exist in the marketplace as well as allowing small farmers to afford insurance. When transaction costs are minimized, the cost associated with the financial product is as close as possible to the cost to the insurer of paying out to policyholders. Not only does this increase potential profit margins for insurers, it keeps the cost of insurance low for farmers. Index insurance’s low transaction costs mean the product’s adoption might be possible without governmental and NGO financial support, which otherwise would be required to supplement insurers operating at a loss.

Index insurance protects insurers from moral hazard. With standard crop insurance, the policy may provide a better outcome to the farmer if the crop fails, tempting the farmer to intentionally sabotage their crop. They may have a policy that pays out more than the expected yield of their harvest, or they may be able to make the same amount of money with a failed harvest without having to put in effort to grow the crops. Because index insurance pays out when uncontrollable weather conditions are met, farmers don’t benefit from a failed harvest, it actually still serves the farmers best when they always strive for a successful harvest, since payouts aren’t determined with the outcome of the crop, but instead based on growing conditions.

Because index insurance determines if payout conditions are met based on weather data, it isn’t always effective in protecting the farmer from risk. If the farmer’s crop fails even when there has been 15 inches of rainfall in the grow season, the farmer has a failed crop and no payout from his insurance policy. If somehow the farmer’s crop succeeds when there has been less than 15 inches of rainfall in the grow season, he receives a payout even when his crop succeeded. So, while index insurance protects insurers from moral hazard, it often can result in ineffective risk mitigation for the farmers.

Index Insurance in Uganda

With the implementation of weather index insurance in Uganda for coffee farmers, coffee farmers can invest their resources to growing coffee without having to bear the risk of crop failure. Policies aimed to protect farmers from drought would pay out to farmers when drought conditions have been met. Since drought is the leading cause of crop loss in coffee agriculture, insurance policies that pay out when drought conditions occur mitigates the risk of low rainfall to coffee farmers, the largest drawback to growing coffee instead of safer crops.

Works Cited

Lyatuu, Justus. “Coffee Farmers Urged to Embrace Insurance.” The Observer. N.p., 10 Mar. 2017. Web. 11 Apr. 2017. <http://www.observer.ug/business/51694-coffee-farmers-urged-to-embrace-insurance.html&gt;.

Hellmuth M.E., Osgood D.E., Hess U., Moorhead A. and Bhojwani H. (eds) 2009. Index insurance and climate risk: Prospects for development and disaster management. Climate and Society No. 2. International Research. Institute for Climate and Society (IRI), Columbia University, New York, USA.

Leiva, Oscar. Hands of María Del Socorro López López. Digital image. Coffeelands. Catholic Relief Services, 9 Nov. 2015. Web. 17 Apr. 2017.