Promoting Investment in Agriculture for Increased Production and Productivity. Saifullah Syed
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Название: Promoting Investment in Agriculture for Increased Production and Productivity
Автор: Saifullah Syed
Издательство: Ingram
Жанр: Зарубежная деловая литература
isbn: 9781789244410
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In agriculture, a distinction is usually made between investments and spending on inputs. This distinction is based rather arbitrarily on the length of time required to generate a return. Planting trees is typically considered an investment because it takes more than a year to generate a return. However, applying fertilizer to a maize crop is not considered an investment because it generates a return during the immediate crop cycle. More important from a conceptual point of view, trees are a capital asset that yields a stream of returns over many years. Even in this seemingly simple case, the distinction between investments and spending on inputs may not be clear. If fertilizer use helps maintain and build soil fertility in the long run, it may also be considered an investment. Similarly, in public expenditures, a distinction is generally made between investment and current expenditures. Again, this distinction is not always clear-cut because current expenditures are required to maintain the value of capital assets, such as roads and other physical infrastructure.
Perspective also matters for what is perceived as investment. From a farmer’s point of view, the purchase of land may represent an important investment in his productive capacity. From society’s perspective, however, this purchase simply involves a change in ownership of an asset rather than a net increase in capital stock, which occurs for instance when land improvements are undertaken.
Investment therefore is a flow and involves the formation of capital. It does not represent the stock of capital in an economy, but rather the changes in that stock of capital that are intended to increase future production, output or income. If it is accepted that the general definition of investment is the increase of capital goods in a given period of time, then the next question to be asked is: what is capital?
2.3 WHAT IS CAPITAL?
The term capital means purchasing power or a fund of generic wealth, owned by individuals or firm and destined to earn its return. In everyday speech the linkage between possession of capital and attainment of a return is emphasized, but the devil is in the details. In general, the definition of capital is a group of ‘products that serve towards production’ or as groups of ‘produced means of production’. This excludes products that serve for immediate satisfaction of needs, as well as land, since it is not a produced item.
However, it is difficult to conceptualize capital for productive investment because it is a diverse set of physical items, such as plants, machinery, buildings, tools and vehicles that are used in the production process. Capital includes human-made goods (or means of production) used in the production of other goods and services. It includes physical items of different kinds and ages, with different technological content (and different levels of obsolescence), which are not conceivable as a homogenous group. It is, however, possible to make the distinctions between fixed (or physical) capital and working capital.
In addition to the above classification of capital, the French sociologist Pierre Bourdieu proposed another distinction of various types of capital. According to Bourdieu, capital acts as a social relation within a system of exchange to extract profits. It can be divided into different categories: economic capital (command over economic resources, such as cash and assets); social capital (the aggregate of the actual or potential resources that are linked to possession of a durable network of more or less institutionalized relationships of mutual acquaintance and recognition and based on group membership, relationships, networks of influence and support); cultural capital (forms of other non-financial social assets, such as knowledge, skills, education, and advantages that a person receives from their parents and educational system to promote social mobility beyond economic means and obtain a higher status in society); and symbolic capital resources available to an individual on the basis of honour, prestige or recognition (Bourdieu, 1986).
These different forms of capital cannot simply be added together to determine the total amount of capital available or needed. They overlap and complement each other, and some forms of capital cannot be substituted for others. Also, all forms of capital are not equally important for agriculture and/or for the different stages of the food value chain. Before discussing the promotion of investment in agriculture, it is important to be clear about what kinds of capital are relevant for agriculture and take into account the wider economic context in which agricultural development occurs.
CHAPTER 3
Investment in agriculture for increased production and productivity
Agricultural development depends on the simultaneous growth of farm-level production and productivity and the value chains to which it is linked. These value chains include a wide range of small- and large-scale activities that involve supplying farm inputs, processing, storing, distributing, wholesaling, retailing and exporting farm products. These activities can be referred to collectively as ‘agro-industry’. There is a need to look at both farm-level investment, as well as investment in agro-industries.
3.1 INVESTMENT FOR ON-FARM AGRICULTURAL CAPITAL STOCK
For any investment to have positive impact on production and productivity, it must contribute to capital formation at the farm level. Persistent poverty and food insecurity is partially explained by insufficient food production, due primarily to the low productivity of agriculture. Low productivity of agriculture signifies low per unit output of factors of production. The primary factors of production in agriculture are land and labour. Low labour productivity, or low land productivity, or the combined effects of both are accountable for low productivity of agriculture.
Agricultural products are outcomes of tamed natural processes that take place on land. This is accomplished with human labour. Land has to be worked to generate agricultural outputs. Land and labour are indispensable primary factors. Without them, agriculture does not exist. Land, as non-produced asset, is fixed in supply. Labour is inherently variable. The labour force or the amount of time worked can change depending on the population or on workers’ preferences. Agriculture on the aggregate level is an industry characterized by a combination of fixed land with variable capital. This combination is typical of low-productivity agriculture in which land size has natural limits and the agricultural labour force is expanding. For the economy as a whole, there is little scope to increase the expanse of agricultural land, particularly when concerns for the environment are mainstreamed into economic activities. Increasing numbers of people taking refuge in agriculture for their livelihoods is a fact of life in developing economies. As such, the model of agriculture relevant to this analysis is characterized by fixed land and variable labour, which are determined by environmental, socio-economic, political and demographic factors that lie outside agriculture.
According to economic theory, a fixed tract of land combined with increased labour produces increased output at a decreasing rate, as it is bound to face inescapable diminishing returns to labour. Productivity increases from the land decline as the land is worked with more labour. Moreover, land loses its fertility as soil nutrients get extracted through repeated cropping. A model of fixed land with increasing labour and declining fertility loss through time approximates the reality of underdeveloped agriculture. This reality will not change unless a compensating mechanism is put in place in the form of land improvement and fertilizing. Indeed, underdeveloped agriculture is characterized by the low level of compensating mechanisms to offset fertility loss. The set of compensating mechanisms is part of a broader concept called land-augmenting technology (Todaro and Smith, 2003), which is the application of a certain form of capital that enhances the productivity of land. That form of capital consists of newer methods and newer technologies for doing things.
Raw agricultural labour is the human expenditure of energy to do useful work. There are natural limits on the amount of energy an individual worker can exert. The natural limit of raw human labour can be extended СКАЧАТЬ