Agriculture: A Perspective from History, the Metrics of Comparative Advantage, and Limitations of the Market to Understand the Role of State in a Globalising World

Multilateral agencies and economists with much influence have been urging laissez-faire in agriculture. While success with the rich countries has been minimal despite the commitments under the WTO, many poor countries with much agricultural potential in the long run have been coaxed to adopt near free trade in agriculture with disastrous results especially for the poor in these economies. The author brings together the historical experience of agricultural development, the relationship [between economic development and agriculture, trade in agriculture, the role of state action especially in the late industrialisation context. The differences between land endowed and land poor countries are recognised in their analyses. The author develops a perspective on the comparative advantage of nations in agriculture and the evolution of the same. A perspective on the comparative advantage of nations in agriculture and the evolution of the same has been developed. The metrics of agriculture and trade, arising out of the dynamics of the share of agriculture in GDP, the dependence of agriculture on land endowments, the biological limits to consumption of agricultural products, underlie a dynamic structural model of the revealed comparative advantage which is developed and tested using panel data from about 100 countries. The purpose is to draw insights that can usefully inform the content of state intervention, and trade policy especially from the point of view of a country like India which is likely to lose its comparative advantage in many agricultural products as incomes rise. The comparative advantage of countries in agriculture is most usefully characterized as rising of the arable land endowments per person and declining as the per capita income rises relative to the worlds “average†per capita income. A structural model on the lines above is estimated empirically. The problem for the poor countries with land abundance is compounded by the large distortion of international prices resulting from subsidization by rich countries as they face declining competitiveness in agriculture due to very high incomes. The coaxing of land rich poor countries in this situation to embrace laissez faire policies by the multilateral agencies is shameful and nothing short of suicide for these countries. Laissez faire policies in agriculture when without reference to the stage of development, and state failure to compensate for the market perversities underlie the disaster that agriculture has been for poor countries with much agricultural potential. [IIMA WP]