Improved efficiency in agricultural practices leads to cheaper food prices, benefitting poor people in particular. However, agricultural employment may also decline, increasing the number of people in that sector without an income.

Policymakers in developing countries often emphasise the need for increased competitiveness and efficiency in domestic agriculture (these are described as ‘efficiency gains’). Agricultural exports can be an important source of foreign revenue, and improved efficiency results in lower prices for food and other agricultural products.

However, more efficient production requires fewer inputs for the same outputs. Even with increased domestic and international demand for cheaper products, agricultural employment will tend to decline overall. Research from the PROVIDE Project in South Africa evaluates how domestic and international efficiency gains in agricultural production affect the South African economy.

Relative to the rest of the economy, the South African agricultural sector has not performed well in the last four decades. The volume of output has remained the same, but declining prices for agricultural products has meant a decline in the gross value of the agricultural sector. Among other things, this declining price is the result of improvements in production techniques. As expected, agricultural employment levels have declined fairly rapidly, and this trend is likely to continue.

The research shows:

• Efficiency gains will cause the agricultural industry to reduce employment further, unless the growth in demand for produce is large enough to maintain jobs. This is considered unlikely.
• Overall, however, the impact on employment and wages is positive, due to growth in other industries. Industries benefit from lower agricultural commodity prices (for example food processing industries), or demand for their outputs increases, because food prices are lower and households have increased spending power..
• Lower-income households benefit from agricultural efficiency gains, especially in urban areas, for example from lower food prices. Rural households may not benefit so much, for example due to declining employment opportunities. This can increase inequality.

Efficiency gains are important for a country to be competitive internationally. However, the agricultural sector is declining in South Africa, and unlikely to remain an important source of employment in the transition to an industrial society. Whilst there are welfare benefits to protecting agricultural jobs, attempts to maintain rural employment by resisting technical progress are likely to fail. As South Africa’s trading partners become more efficient, South Africa will be left at a disadvantage.

As even small changes in agricultural efficiency produce substantial welfare benefits, it is crucial that the government does not introduce policies that adversely affect agricultural performance without first assessing the overall consequences. Policymakers should encourage technological improvements, as the advantages of agricultural efficiency far outweigh the disadvantages in the long term.

The researchers recommend that the South African government:

• recognise the existence of a transition period for other industries to make up for job losses in the agricultural sector
• continue to raise the rate of technical progress to maintain competitiveness and reduce the cost of living
• encourage the development of new job opportunities outside urban areas
• assist people trying to migrate from rural to urban areas.

Source(s):
‘Agricultural Efficiency and Welfare in South Africa’, Development Southern Africa Vol.24, No.2, by Kalie Pauw, Scott McDonald and Cecilia Punt, 2007

id21 Research Highlight: 12 September 2007

Further Information:
Kalie Pauw
Department of Agriculture, Western Cape
Private Bag X1
Elsenburg 7607
South Africa

Tel: +27 21 8085198
Fax: +27 21 8085210
Contact the contributor: Karl.Pauw@uct.ac.za

PROVIDE Project, South Africa

Cecilia Punt
Department of Agriculture, Western Cape
Private Bag X1
Elsenburg 7607
South Africa

Tel: +27 21 8085198
Fax: +27 21 8085210
Contact the contributor: CeciliaP@elsenburg.com

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'Agriculture’s vital contribution to pro-poor growth'

'Can land redistribution policies promote rural growth?'

'Rural income and poverty during times of change in Malawi'

See id21's links for agriculture and development