Factor Prices and Methods of Cultivation

A basic feature of the agricultural sector of almost all underdeveloped countries is that access to factors of production is much easier for some groups than others. That is, factor markets are highly ‘imperfect’, and in consequence market prices diverge considerably from social opportunity costs. In many instances, in fact, there is a multiplicity of markets within a locality for a single factor of production, e.g. credit. In these instances there may be no such thing as ‘the’ price of an input; different groups may pay different prices for the same input. In other cases there may be no market for certain inputs. For example, in many regions of the world land is seldom bought or sold; transfer is usually through gift or inheritance. Moreoever, in some regions there may be no rental price of land, although producers will, of course, operate in terms of implicit or subjective prices. Thus the rural areas of underdeveloped countries are characterized both by a scarcity of factor markets and by an abundance of small, fragmented markets. This market structure affects the allocation of resources within agriculture, the methods of production adopted by the farmer, the readiness to innovate and the distribution of income.