Economic Deveopment and Structural Transformation of Agriculture Issues

Economic Deveopment and Structural Transformation of Agriculture : Issues and Prospects Jung-Hwan Lee Vice-president, KREI

Contents 1. Introduction 2. Agriculture in the Korea Economy 3. Transformation of Agricultural Production 4. Transformation of Agricultural Employment 5. Transformation of Farm Land Transfer 6. Concluding Remarks and Implications

Ⅰ. Introduction ` Three Dimensions Adjustment of Agricultural Transformation of Agricultural Production from Traditional Commodities to Highly Income-Elastic and Exportable Commodities - Agricultural Growth Constrained by Supply-Side Factors in LICs by Demand-Side Factors in HICs

Reallocation of Labor Forces from Agriculture to Non-agriculture - Regulated by Job Change, Natural Factors, New Entrants Transfer of Farm Land Operationship form Small-Sized Farms to Large-Sized Farms

Ⅱ. Agriculture in `the Korea Economy 1. Transformation of Industrial Structure Agricultural Share has been Declining Trans. Point A Agriculture ≤ Service ≤ Manufacture Trans. Point B Agriculture A & B in Production ⇒ PA, PB A & B in Employment ⇒ EA, EB

Figure. Trans. of Industrial Structure in Korea <Employment Structure> Source: EPB. Annual Survey Report on the Economically Active Population Survey.

Figure. Trans. of Industrial Structure in Korea <Production Structure> Source : Bank of Korea(BOK), National Account.

Sequence of Transformation in Korea Table. Four Transformation Points & Time Lag Unit: % (Year)

International Comparison - Production Share

International Comparison - Employment Share

Table. The Year When the Ag. l Employment Ratio Reached 40 and 16 Percent

Table. The Year When the Ag. Pro. Share Reached 40 and 7 Percent - Transformation Point

Table. Agricultural Share at Trans. Points Unit: % Source : Lee and Timmer(1993)

- Time Lag between PA & EA, PB & EBTable. Time Lag in Industrial Trans.

2. Productivity Difference Proty Rate(Ag. Proty / Ag. Proty) in Korea Figure. Productivity Difference between Sectors

International Comparison ) 1 7 9 1 ( s t e n z u K ce n e r e f f i D y t i v i t c - Produ Decreases Ohkawa(1973) - Productivity Difference Increases Chenery(1986) - U-Shape

Industrial Structure & Turning Point

Ⅲ. Transformation of Agricultural` Production 1. Agricultural Growth in Korea Phases of Agriculture Growth Recovery 1990/92∼ 1995/97 2. 2% Negative Growth 1986/88∼ 1990/92 -0. 6% Slow Down 1975/77∼ 1986/88 1. 1% High Growth 1970/72∼ 1975/77 5. 8%

Contribution Rate by Commodity - High Growth by Rice & Vegetable, 4. 4%, 12. 4% - Slow Down by Rice & Grains, 0. 2%, -5. 0% - Negative Growth by Rice & Grains, -1. 7%, -5. 8% - Recovery by Vegetable & Livestock 4. 6%, 6. 7%

2. Transformation of Production Life Cycle of Demand for Agricultural Commodities - Luxury Goods⇒ Common Goods ⇒ Inferior Goods Life Cycle of Supply for Agricultural Commodities - Land Productivity ⇒ Labor Productivity - Mechanization or HVA Commodities

Figure. Growth of Land Labor Productivities in korean Agriculture Korea Failed in Timely Transformation of Agricultural Production

Ⅳ. Transformation of Agricultural Employment 1. Paths of Transformation of Employment Structure Job Change Three Paths of Transformation Death & Retirement Allocation of New Entrants

Job Change of Current Farm Labor Forces Table. Rate of Job Change from Ag. to Non-Ag. unit : % Source : Lee and Timmer (1993).

- Rate of Job Change by Age Group Table. Rate of Job Change of Agricultural Labor Force by Age unit : % - U-turn from Non-Agriculture

Sources of Decrease in Agricultural Labor Force: Dominated by Natural Factors Table. Sources of Decrease in Agricultural Labor Force unit : % Source : Lee and Timmer (1993).

2. Trans. of Age Structure of Ag. Labor Force Age Profile Curve shows Agricultural Share of Employment by Age Group Figure. Shift of Age Profile Curve of Ag. Labor Force in Korea - Share of New Entrant decrease more Fast - Job Change of Current Labor is very Low

Britain's Experience Figure. Shift of Age Profile Curve of Ag. Labor Force in Britain Source: Lee and Timmer(1993).

International Comparison Figure. Age Profile Curve of Ag. Labor Force: International Comparison in 1975 <Panel A> Source: Lee and Timmer(1993).

Figure. Age Profile Curve of Ag. Labor Force: International Comparison in 1975 <Panel B> Source: Lee and

Ⅴ. Transformation of Farm Land Transfer ` 1. Urban Land Market and Farm Land Price High Economic Growth Rate ⇒ Spurting Land Prices & Demand in Urban Areas ⇒ Increases of Farm Land Prices PA : Farm Land Price, RA : Farm Rent PN : Urban Land Price

Table. Land Price Index and Rate of Return to Farm Land in Korea Source : Lee J. H. et al. (1990), p. 63.

International Comparison Table. Rate of Rent Returns to Farm Land : International Comparison. Unit: % 1. * denote 1960 and 1980, respectively. Source : EUROSTAT and Dewit(1983). Lee J. H. et al. (1990), p. 63.

2. Development of Farmland Tenure System Land Reform Act(1949) - Farmland Distributed to Resident Farmers on an Equity Basis - 91. 9% of Total Farmland Att. to Owner Farms Tenant Farms Expanded since LRA - Tenant Farming Area : 43. 5% in 1997 - Farmland Transfer Depends on Lease

Table. Changes in Farm Size and dependence on Leases: A Case Study unit: % Source : Lee and Kim. (1984), p. 69 and 75.

Large-Sized Farms Depends on Lease Figure. Changes in Share of Rented Area by Farm Size <Korea> Source: MAF, Agricultural Census.

Figure. Changes in Share of Rented Area by Farm Size <Germany> Source: Koreanaga(1991), p. 155

Figure. Changes in Share of Rented Area by Farm Size <Japan> Source: MAF, Agricultural Census.

International Comparison Figure. Share of Rented Area by Farm Size in Developed Countries Sourece: Korenage(1991), p. 151 Why Lease is Prevailing? - High Farmland Price - Requirement of Farm Size Enlargement

3. Transformation of Farm Size Distribution Four Phases of Size Distribution in Korea - By the mid-1960 s - By the beginning 1980 s - From the end 1980 s Polarization Mid-size Concentration Upward Tilt Polarization Revived Figure. Changes in Farm Size Distribution in Korea

International Comparison (Polarization) ⇒ Mid Size Concentration ⇒ Upward Tilt ⇒ Polarization Figure. Changes in Farm Size Distribution in Japan Source : MAF, Statistical Yearbook on Agriculture and

Figure. Change in Farm Size Dist. in Netherlands Source: W. Huizinga & D. Strijiker(1986) and

Why Farm Size Dist Transformed? - In the Initial Stage of Economic Development Non-ag Employment Limited 2 nd or 3 rd Sons Turn very Small Size Owner / Tenant Farms or Laborers Large Size Farms depend on Cheap Laborers - Progress Stage of Economic Development Non-ag Employment Increases 2 nd or 3 rd Sons not Create New Farms Large Sized Farms Lease within Capacity of Family Labor(Cheap Farm Laborers not Available)

- Developed Stage Farm Mechanization Proceed and Part-Time Farming Available Large Size Farms Can Pay High Rent Large Size Concentration, Small Size Farms Sustain Table. Farm Size and Production Cost

Ⅱ. Agriculture in `the Korea Economy 1. Transformation Process of Agricultural Structure

2. Implications Hardship of Developing Countries New Income-Elastic Commodities Should be Developed before Demand for Traditional Stage Crops Slows Down Job-training and Retirement Program Should be Conducted to Boost Reallocation of Labor Force Farmland Lease System Should be Developed to Promote Farmland Transfer

Thank you! Korea Rural Economic Institute http: //www. krei. re. kr belmont@krei. re. kr