Agricultural Technolog; E. C. Passour, Jr.

E. C. Pasour, Jr. AgriculturalTechnology. EconomicIncentivesand world Food problems BRITISH Parson Sir Thomas Malthus predicted in 1798 that population in creases over time would outstrip in creases in food production causing chronic food shortages. In recent years, a neo-Malthusian doctrine has again gained popularity as wide spread hunger problems, especially in Ethiopia and other African coun tries, command front-page head lines. It is ironic that visions of a starving Africa are obscuring a ma jor surge in agricultural productiv ity throughout much of the world to day. Moreover, there is a great deal of evidence that the most serious constraints on food production are not weather or natural resources but Dr. Pasour is Professor of Economics at North Car olina State University at Raleigh. rather government policies that sti fle entrepreneurial incentives. This paper presents evidence on rising farm productivity, the importance of economic incentives in agriculture, and implications for world food pro duction and economic development.

Rising Farm Productivity1 Increases in agricultural technol ogy are resulting in dramatic increases in farm productivity throughout much ofthe world. In the United States, farmers planted the world's first hybrid wheat in 1984, which increased yields from 25 to 30 percent. Rice growers in the Gulf states planted a new rice variety, which also had yields 25 to 30 per cent higher than earlier varieties. At the same time, Taiwanese farmers 427 428 THE FREEMAN July are feeding surplus rice to livestock. Agricultural output is also increas ing rapidly in the European Eco nomic Community (E.E.C.). Wheat yields rose 23 percent in the E.E.C. in 1984 and French harvest of field peas has jumped 50 percent in two years. Contrary to popular impression, world agricultural production is also increasing rapidly in the developing countries. Thailand, Malaysia, In donesia, and the Philippines have all increased their farm productivity by more than 35 percent in the last dec ade. The International Rice Research Institute has introduced its Third World rice variety, which requires much less nitrogen and pesticide protection to achieve yields compa rable to those of its previous "mir acle" rice varieties. Researchers in Peru are making breakthroughs in production in the huge Amazon Basin replacing trace minerals that leach rapidly because of the high rainfall. Argentine wheat has be come so cheap that grain companies recently considered importing it into the United States.

Agricultural productivity in Asia has been most influenced by the Green Revolution and by a recent dramatic shift in Chinese farm pol icy. Green Revolution rice varieties have been the biggest single factor in lifting Asian agricultural output by more than 25 percent during the past decade. Yet, potential gains from increases in available technology can be choked by policies that stifle entrepreneurial incentives. Technology Is Not Enough China provides a classic example both of the effect of collectivist ag ricultural policies and of what can happen when these policies are changed. In 1958, Chairman Mao de creed "The Year of the Great Leap Forward." Under the "Great Leap Program," large numbers of farm workers were to be diverted to in dustrial employment and the re maining farm population forced into agricultural communes. The loss in agricultural output caused by these policies was catastrophic. Food sup plies fell to famine levels and had not recovered by 1965. Thus, contrary to conventional wisdom, per capita food consumption actually decreased dur ing the Mao years.

China's agricultural output has increased dramatically since the late 1970s when a decision was made to increase farm product prices, scrap the big communal farms, and lease the land back to families and small groups. The privatization moves and the retreat from communism have been accompanied by an increase in foodgrain output of 12 percent a year for the past seven years despite bad weather in 1980, so that China has overtaken Russia as the world's largest wheat producer. 2 A recent article in The Economist reveals a general relationship be1985 WORLD FOOD PROBLEMS 429 tween market incentives and agri cultural production. 3 In a cross-coun try comparison of food production, Africa dominates the list of individ ual countries whose agriculture has increased the least since 1970. How ever, the difference between the most and least productive African states is dramatic. Significantly, the study concludes that: "Those which have done best-e.g., Ivory Coast and Ma lawi-have encouraged private own ership of land, or given peasant farmers security of tenure. The least productive have been those which have encouraged state and collective farms."2 The evidence suggests that prop erty rights and economic incentives are fully as important in less devel oped as in highly developed econ omies. This conclusion, however, should not be taken to mean that providing economic incentives will quickly transform a poor country.

There is no short-cut to economic development, with or without outside financial aid. (As shown below, financial aid often is counterproductive.) The solution to economic develop ment in low-income countries lies primarily within the countries themselves. The only long-run so lution to food and income problems in any country is to increase through capital formation the productivity of the people involved. When govern ment policies severely distort economic incentives and discourage capital formation, it is not surpris ing that productivity, including ag ricultural output, is low. What Can Be Done? There is evidence that more can be done to increase food production in poor countries. Large increases in output by peasants in India, China, and other countries show that in creases in agricultural output do not require big farms, big dams, big ir rigation systems or an "agricultural plan." Instead, the most important step is to provide entrepreneurial in centives. This means that poor coun tries need to scrap those policies that are biased against farmers such as high taxes, price controls on farm products, overvalued exchange rates that depress agricultural exports, and protectionist trade policies that increase the cost of fertilizer and farm machinery. 5 Developing countries, for example, often have regulations banning the importation of tractors, harvesters, and other mechanically powered farm machinery. Such restrictions are based on the old but persistent myth that machines destroy jobs.

This argument carried to its logical conclusion would prevent all substi tution of capital for labor and per manently keep workers at a subsis tence level. Another important step, as sug gested by the productivity figures 430 THE FREEMAN July presented above, is to increase the application of science in agricultural production. Per capita food produc tion rose 16 percent in South Amer ica and 10 percent in Asia between 1972 and 1982.6 This improved per formance is due both to improved farming technology and to stronger economic incentives to use it. Many small farmers in developing coun tries, given an incentive, can now benefit from higher yielding vari eties and better pest control. Africa-No Exception But what about Mrica? In recent months, the world's attention has been riveted on Africa's hunger problems. The food problem in Af rica is not due to the lack of natural resources. The problem is that most of Africa has continued to practice its traditional method of cultivation as rising population pressures allow fallow land less and less time to re cover its natural fertility. Overgraz ing is also encouraged by communal landholding. Public policies rooted in a development model stressing the necessity of central planning and ra pid industrialization stifle agricul tural production (and economic de velopment in general). Dennis Avery, senior agricultural analyst, U.S. Department of State, presents a vivid example: The importance of policy is amply dem onstrated in the neighboring countries of Kenya and Tanzania. The two nations have similar agricultural resources and histories-but in the 20 years since in dependence, they have followed diamet rically opposite farm policies. Kenya divided big landholdings among small holders, then backed the smallholders with price incentives, research and ex tension programs. Overall farm produc tivity increased 37 percent from 1971 to 1982. Tanzania forced its scattered fam ily farmers to consolidate into large vil lages ... Tanzania's farm output rose only 12 percent in the 11 years from 1971 to 1982-even by the Tanzanian govern ment's highly optimistic numbers. Only massive food aid forestalled widespread hunger in Tanzania even before the re cent drought. 7 Avery contends that even in Af rica, technology is now available to double yields and drought-proof its food supplies. 8 He cites as evidence a new, more drought-resistant sorghum hybrid developed in the Su dan that appears to have the poten tial to triple yields in much of East Africa. Also available is a new sorghum for the dryer region of the Sahel that apparently can double yields there. In West Africa, there is the potential to become self-suffi cient in rice by shifting from upland to swamp rice production. Nigeria has a new corn variety that yielded nine tons per hectare in the midst of last year's drought (the current av erage yield is one ton). New peanut varieties with yields several times those of current varieties are being tested in Senegal, Mozambique, 1985 WORLD FOOD PROBLEMS 431 Zambia, and Zimbabwe. Improved pest control and new varieties helped bring about a seven-fold increase in yields of cowpeas in West Africa. The fact that available technology has not been more widely applied in Af rica is not only a highly visible hu man tragedy but also an indictment of the government policies of African nations.

Farm Programs in Developed Countries Agricultural success in the less de veloped countries is also adversely affected by farm programs in the United States and other highly de veloped countries that subsidize do mestic agricultural output. When domestic prices of farm products are raised above the world price, im ports must be restricted to prevent domestic users from buying lower priced imports. As a result of the U.S. sugar price support program, for ex ample, domestic sugar price was four times the world price in late 1984. This import quota system, imposed by the world's biggest sugar market, is highly detrimental to Caribbean sugar producers. In addition, subsidies, easy credit terms, and reduced interest rates are often used in the United States, the European Economic Community, and other developed countries to in crease agricultural exports. Regard less of the type subsidy, producers in the exporting country receive an artificial advantage at the expense of producers in the countries where the products are "dumped." This dump ing of agricultural products in de veloping countries permits govern ments to keep the price of food cheap to the detriment of local farmers. De pendence on cheap imports discour ages agricultural development and food production. The conclusion is that in assisting developing coun tries, the United States, the E.E.C., and other highly developed coun tries should stop subsidizing their own farmers. While government farm programs in the United States are often sold to the public on the ba sis of helping "feed the world," these programs actually impede economic development and food production in less-developed countries.

Economic Aid The conventional wisdom for the past generation has been that poor countries cannot develop without fi nancial aid from the highly devel oped countries. Foreign aid, how ever, is not indispensable to economic progress. Indeed, P.T. Bauer shows that aid is more likely to obstruct development than to pro mote it. 9 Foreign aid reduces in comes in the donor countries and en ables the recipient country to follow counterproducti ve interventionist policies. Aid, for example, enabled Tanzania to pursue economic and so cial policies that are antithetical to 432 THE FREEMAN July both economic progress and individ ual freedom. The effects on farm out put of the Tanzanian experiment (which involved forcibly herding millions of people into collectivized villages) were described above. The Population Problem Neo-Malthusians frequently cite the population "explosion" as an in surmountable barrier in alleviating world hunger. The prophets of doom typically reach their conclusions on the basis of projecting past trends.

However, there is no reason to expect population to continue to increase at the same rate in developing countries as economic development occurs. When income levels rise in developing countries, the birth rate can be expected to decrease. lo Thus, the relationshp between population and food must be considered in the context of economic development. There is no evidence that Draconian population controls (such as compul sory sterilization or abortion) are re quired for economic development. Implicationsand Conclusions The world is currently undergoing a major increase in agricultural pro ductivity. World agricultural pro duction is at a record high and is in creasing rapidly. Agricultural output is increasing rapidly in the developing countries-rising from 2.7 percent per year in the early 1970s to 3.3 percent annually from 1977 to 1982. 11 This growth rate would have been even higher if not for the dismal record of agricultural production in Africa.

The famine in Afria emphasizes the urgency of modernizing African agriculture. Fortunately, much of the required technology is presently available. The coupling of technol ogy with economic incentives can in crease agricultural output in Africa just as it has in many countries throughout the world. There is no easy or quick solution to world hunger or economic devel opment. Production offood and other products is limited by available re sources, and the only realistic goal in any country is to make the most efficient use of these resources. The only effective way of increasing in comes is to increase capital forma tion and productivity. Foreign aid is no substitute for voluntary savings by the millions of people living in low-income countries. Programs and policies affecting physical inputs will have little effect on output in the absence of the proper social and economic climate.

Political controls of agriculture and other sectors of the economy inevit ably stifle individual initiative, cap ital accumulation, and productivity. It is no accident that, every country that has launched experiments in collectivized agriculture has wit nessed a decrease in agricultural productivity. Hong Kong, Singapore, 1985 WORLD FOOD PROBLEMS 433 South Korea and Taiwan are ex amples of countries that have pros pered by shunning collectivist eco nomic policies. The effect of recent limited privatization measures on agricultural output in China pro vides another dramatic example of the effect of economic incentives. Increases in agricultural technol ogy present a challenge to highly de veloped as well as to less developed countries. The temptation by gov ernment officials in both cases is to "manage agriculture." In the devel oped countries, domestic farm prod uct prices are increased above com petitive levels by expensive farm programs. Surpluses acquired in the operation of price support programs are often "dumped" in less devel oped countries. These policies are in imical to food production in less de veloped countries and to economic progress.

Rising farm productivity through out the world now holds the promise of undermining these protectionist farm policies. There seems little doubt that farm producers in all countries will face more competition in domestic and foreign markets as currently available technology is adopted more widely. There is no way to determine now what the ultimate effects of these developments on world agriculture will be. We can be confident, however, that a more pro ductive agriculture holds the poten tial to improve the lot of the world's hungry people. The challenge to gov ernments in developed and less de veloped countries then is to abstain from policies that restrict competi tion and trade. Such restrictions pre vent farmers and other workers in all countries from engaging in those activities in which they are most productive. Only through wide spread use of decentralized compet itive markets can agricultural re sources throughout the world be used most productively, yielding maximum benefits to people in all countries. i) -FOOTNOTESIThe productivity figures cited in this section are from two papers by Dennis T. Avery, Senior Agricultural Analyst, Bureau of Intelligence and Research, U.S. Department of State. "The Dilemma of Rising Farm Productivity" was presented before The Agribusiness Round table, September 10, 1984. "The Bad News for Farmers Is That the Global Bad News Is Wrong" was presented before the N.C. So ciety of Farm Managers and Rural Appraisers, February 28, 1985.

2"Business Brief: In Praise of Peasants," The Economist, February 2, 1985, pp. 86-87. 3Ibid., p. 87. 4Ibid. 5"Peasants Rising," The Economist, February 2, 1985, pp. 11-12. 6Dennis Avery, 1985, op. cit., p. 3. 'Dennis Avery, 1984, op. cit., pp. 6-7. 6Dennis Avery, 1985, op cit., p. 4. 9P.T. Bauer, Dissent on Development, Revised ed. (Cambridge, Mass.: Harvard Univ. Press, 1976), pp. 95-132. lOLudwigvon Mises, Human Action (Chicago: Henry Regnery and Co., 1966), p. 669. llDennis Avery, 1985, op. cit., p.3.