Adams, Dale W.

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Studies in Agricultur~l Cepitnl jnd Technology Economics and Sociology Occnsion1l P•per No. 10 Credit and Input Nnket Issues in the Green Revolution by D:1le W Adnms Agricultur:.;l Economist July 24, 1970 Department of Agricul tun1l Econotnics :nd Rurd Sociology The Ohio St<1te University 2120 Fyffe Ro."Jd Columbus, Ohio 43210 CREDIT .iND INPUT ~RKET ISSUES IN THE GREEN REVCLu~I0N* by D1le \<T AdM1~ The Ohio St~te University There is little doubt th1t the Green Revolution h"s est~blished 1 much more positive tone in policy·m~kiPg circles tow'rd griculture, 'JS well ss helped to identify the "techn('llogic'11 b rrier" ~s '1 impor~ t~nt issue in ~gricultur~l development. F~lcon 1 s c~ll for perspective on the limited nl'lture of the Green Revolution is, hmvever, timely for 3t le,...st three ret'sons. First, cf.lre must be t'ken I'Ot to oversell decision makers on the import mce of new ::~gricultur"'l technology; great many of 1griculture 1s problems c~nnot be solved by · h~ndful of scientists in 1 few region~l llborntories. Moreover, the needs for ::llnost .::11 of the 11tr-:ditionll 11 .,gricultur"'l development techniques (efficient pricing policy, extension, markets, credit, etc.) ~re sharply i~cre..,sed with rApid technologic.,! ch.:"nge. Second, 1gt'icultur.l problems 1re very heterogeneous and there ~re still a number of cases ~round the world where a "technology b,.rrier" is not .:n immedi 1te constraint on .,gricul-tur1l output; e.g., pricing policy in Th·il-nd 1nd Migeri~, l8nd tet'ure in Northeast Brazil Jnd Gu~temJl:, 1gricultur~l credit in Ethiopi~ ~nd Boliviq, rurnl tr3nsport~tion systems in Nep1l nnd HondurAs, ngricul-tur3l service institutions in Irnq nnd BurM~, 1nd irrig1tion in Peru ~nd IndiD. *A paper prepnred ~s a b1sis for discussion in conjunction with the topic "The Green Revolution: Second Gener::ttion Problema", Americnn Agricultur-::1 Economics Associ£ltien Meeting, Columbi·:,Misoouri,August 9-11, 1970. ·2-· Third, and ::~ost it'lport'1ntly, F1lcon is very tiraely in ::;tressi;;g that the Green Revolution is ·nc>inly touch>_ng "the·"! th-·t' s-got 11 • 'iith few exceptions, new technology h· s been :-.:ighly comple•nent ry 1nd :>yner-gistic in farm firms which ..,lre£-dy h.,ve signific1nt bundles of .lgricul-tursl resources. New technology ·s well ::ts ;11ost other '1:'~or _gricultur~l development techniques hsve h'1d little f:~llout ernong the rur:•l poor. Judged by equity criteri,, P.gricultur;l policies in most pdrts of the world have been only slightly successful. I wonder if it is now more appropri~te to stress increasing :~griculturcl output joined with equity consider:~tions. C::>n :Jgricultur'11 technology '1:3 uell '3S other developm.::nt tools be .,djusted to h0ve this type of imp"ct? After being 'lSSociated with an aid "gency for sever2l ye"rs I have become impressed (or depressed) by the present difficulties of ch"nnelling resources tow1rd rur~l poverty issues. In lrrge me.sure, this is true not so much because of goblins wearing bl1ck h1ts, but becAuse institu-tiors which ch::mnel these resourcew h'lve l·"rgely evolved to service major mnrket pqrticip'1nts. For ex1mple, in Brnzil less th~n 15 percent of the farmers sh~re in the l~rgess of neg2tively priced (in real tenus) institutional agricultur1l credit. Recently, in EthiopiJ, the principAl lending 1gency for ~griculture h~d only 50 f~rm lonns extended with Pn average v~lue in excess of eight thous1nd doll3rs. Simply put, the institution:1l infra-structure which would r:llow rur 11 poor to p-;rticip ~te in technologicAl ch:mge is, in most cnses, not in pl -:ce. I feel th'it '~ challenge of the 197';) 1 s will be to develop policies iJnd programs which stimul~te the growth of these types of institutions. In line with the 1bove discussion, ! w<>nt to focus on :~ few issues related to agricultur~l credit, rurAl sAvings, and purchased inputs in -3-the £1ctor ~~rket 'rea. I feel th~t m'jor ~\1ounts of 'tte~tion need to be directed at these topics in order to develop institution~! c~p~city 1nd fuel ~griculturrl ch~nge ~mong rurAl poor. Concurrent with technologic~l ch~nge, there is ger.er~lly 1 very r~pid growth in the factor M1rkets servicing 4griculture. For exP.~ple, during the p~st few years evidence h~s been 'Sse:~bled which suggests th:t 3gricultur~l credit require~ents incre9se very r~pidly with ch~nges in technology ~nd/or farm enterprises. LP import~nt p~rt of this is due to the rapid growth in fertilizer use noted in Falcon's paper. Other costs, however, also increase. In Indi' v~ri:ble costs hcve been re-ported to h~ve doubled for IR-8 rice producers over costs incurred with older v~rieties of rice. In Br~zil f~rmers with rel~tively high levels of technology are 8bsorbing over twice ~s much credit per :ere as thoGe with low level techpology. In the Philippines, f1rM expenses were reported to incre~se by ~ foetor of five with new rice v·;rieties plus some enterprise ch:nges. In southern Brazil, research ~t Ohio St~te has shown a 30-fold increase on Q per ~ere basis in credit requirements ~s farmers meve from extensive cattle oper~tions to intensive crops. Even with ~n ~nnu1l ~veragc increase of 17 percent in re~l institutional 3gricultur3l credit jV1il~ble over 1960-1968, Brazil h~s been un1ble to ~void r~ther serious credit r1tioning for small f~rmers. Likewise, the little guy in Indi~ is hPrd put to find fin~ncing for tube wells :nd fertilizer so as to c~pit~lize on the high yielding gr1in vnrieties. For purposes of initiating discussion~ I would like t• rnise the following points: (1) Can efficient institution;! fonus be developed which will allow rural poor to benefit from technologicAl chnnge? If these institutions -4-were org,:1nized tn'Jinly ·~round providing services in f-:>ctor r;:crkets, lliould they be nore econon,ic::!lly vbJ:.le th '" cooper 'tives, for ex;:npl;:!, w~ich "'re providing services m1inly in the consu~.1ption "nd product r.nrket -re::>? 1 7h~t role cnn cooper~tives, other loc~l joint 'Ctivity groups, and pri-V':lte enterprise play in filling the institutionnl g.:;p suggested 1bove? Hould major emphc>sis on "institution"'l engineering" require a return to "Point IV"type progr.;1ms which stressed project-by··project technic'"l ~ssis­tance rather th3n mPjor doses of c:;pit1l? (2) Should these institutions for servicing rur2l poor have :;s one of their major functions the mobiliz:;tion of volunt3ry s:-1vings for relending ns agriculturQl credit? Would this be :;n econowic1lly vi-ble role for cooperatives? I feel that subst-:P..ti..,l voluntPry swings capa-city exists in rural are~s of less developed countries. It seens to me thct the p~ucity of ~ppropriate fin8ncirl incentives as well 's l~ck of ::ccess to institutional forms, rather th· n low m-::rginal propensities to save, blocks institution lized savings. Examples from Kore.:1, T-:Jiwan, Indonesi21, East Pnkist::m, Ugand::, the Philippines, Br.1zil, -:Jnd other South Americnn countries are suggestive in this regPrd. In sever?l of these C3ses, especi~lly Korea and Taiwan, subst1ntiPl interest rhte increases resulted in ':'m.1zing exp:msions in institutional s:wings. T::~p­ping into new income stre~ms, stimul~ted by technologicnl chonge, through mobilization of volunt~ry savings seems a vit"Jl component of providing the substantial agricultur~l credit which will be needed. (3) In nlmost ~11 of the less developed countries low, ~dministered interest rates on institutional agriculturnl credit nre gener:9l policy. In Brazil, for ex.:.1mple, .-::gricultural credit borrowers .1re charged only about one-h~l£ the rAte of interest pnid by other borrowers. Both rates 5-heve gener~lly bee~ below the p:ce of i~fl~ti~n nd thuc result in neg -tivc real rAtes of ir>terest. !.s a reoult, i:;tputs purch "Sed with ~gricul­tur'!l credit '::lre subsidized through concession"l interest r~tes. subsidy in the r nge of $100 to $200 million doll.rs per ye.sr h:Js flowed to borrowers of ~griculturel credit in Br~zil cs ~ consequer>ce. Che~p-agricultur~l-credit policy nnd cred{t rationing have often fogged the issues of credit sc~rcity at efficient prices, and hidden the re~l extent of the "technologic1l b11rricr. 11 Hould it be 'l good move to gener.lly rl'ise "'dministered interest retes on agricultur'll credit ir> less developed countries? Would this "Ssist credit cooperntives~ for example, to Maint..,in fin::rcial integrity? Should credit policy be directed ~t providing fin~nci:l resources ~t efficient prices t'.!:lthcr tl&.,n trying to elimin.,te through lo'tV' interest r~tes u1onopolistic elernents thought to exist in the inform<Jl rurPl credit m:1rket? rJh ... t is the le~st ·mount of trnining ::nd supervision which cnn be tied to small "'gricultural lo-ns ~nd still m~ke loan pro-grams flo~t? C1n group lo1ns to sm1ll fJrmers be used ns n tec~nique of reducing default problema? In sut'l!ll"ry, I feel that import'lnt ch~~ges in current :>gricultur-:11 developlnent policy wust be m •de if ruul poverty is to be colored by the Green Revolution. tJhile the grubby work of developing loc1l insti-tutions to fDcilit~te rural chAnge h~s l)rgely gone out of vogue, I feel that it must .-g:lin receive emphasis if rurol poverty problems Rre to be seriously ~ddressed. A mAjor challenge is going to be finding viable economic functions which these institutions c~n perform. The credit-savings issue should receive serious ~ttention in this reg~rd. 

Credit and Input Market Issues in the Green Revolution

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Credit and Input Market Issues in the Green Revolution

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