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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