A New Challenge for Agriculture in Low and Middle Income ECA Countries 1

A New Challenge for Agriculture in Low and Middle Income ECA Countries

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Analytical Framework

Trends in Farm Mechanization

Rationale – understanding these trends

Conclusions – where to from here

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Trends in mechanization conditioned by

◦ Approach to reform European Accession Countries plus Turkey Transition Countries Truncated Reform Countries

◦ Resource endowments at beginning of reform Labor Intensive production Labor Extensive production

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Tractor Use Horse Use Combine Use

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Wage Rates (and supply of rural labor)

Interest Rates

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Tractor Imports

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Conceptual Framework

Observed Trends in Capital/Labor Ratios (K/L)

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I. Incentives to Invest◦ Investment rates < $10/ha until land reform and

market liberalization are well advanced.

II. Subsequent Growth in Investment – Responds to Stronger

Financial institutions Business Environment Competition Policy

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Wage rates – strongest influence, across all categories

Nominal Interest rates – relevant for accession countries

Access to Credit – important for combines Road Density – importance of farm

machinery as a source of transport

Interest Costs vs Machinery Costs ??

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Farm mechanization heavily influenced by approach to policy reform

  Labor costs may be more important than

interest costs.   De-mechanisation a major issue where

there is a decline in both labor availability and machinery use.

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Labor Extensive Truncated Reform Countries◦ Policy measures to promote investment in farm

machinery based on reducing financial constraints (state credit and leasing programs, subsidized interest). Are these the real constraints ?

  Labor Intensive Transition Countries

◦ Potential for increased use of low cost farm machinery, particularly farm machinery produced by emerging countries.

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