Tuesday, September 26, 2006

Agriculture optimism and pessimism: the perrenial debate

I dusted off a copy of the classic article by Johnston and Mellor in 1961 on The Role of Agriculture and Development (in the American Economic Review). Reading it now I realize how remarkable it was - much of the later insight on agriculture and development were presaged in its pages. The emphasis on broad-based technological change; the possibility of financing industrial investment through agricultural savings; and the compatibility of high labor use with a modernized, high-yielding agriculture (departing from the Western model of highly productive, but also highly mechanized farms).

Just to let you know: there is an ongoing debate in the literature between agriculture optimism (or agriculture fundamentalism) and agriculture pessimism (or agriculture skepticism). The former advocates an agriculture-led strategy of growth; the latter holds that in some (or perhaps many) cases agricultural development can essentially be bypassed in the process of economic development. Johnston and Mellor themselves were not so fundamentalist in their advocacy of agriculture (though later Mellor was to turn hardcore).

Saturday, September 23, 2006


As I promised, I got around to updating my home page. I've uploaded some of my new papers, including my latest, coming out in Fish and Fisheries, "Projecting Future Fish Supplies Using Stock Dynamics and Demand." That's where I argue that economists' supply-demand models should be synthesized with biologists' ecological models; I sketch a prototype model with numerical simulations to show just how this might be done. Another recent paper is a "Eating for a Lifetime: A Policy Assessment of Philippine Fisheries."

Check it out and download to your heart's content, as long as it's for personal use.

Thursday, September 21, 2006

The importance of a good analogy

When I was a college student (even in economics!!!) I took it for granted that industrialization is the key to development. Agriculture is backward and plays no role in development, except to give up its workers for manufacturing (and thereby shrink). What a shame if we can't produce our own hammers, screwdrivers, cars, computers, and all that marvellous stuff made in those big macho factories.

Now as a professional economist I find myself arguing otherwise: in most cases, development of agriculture is a prerequisite to industrialization. What changed my mind? A lot of research, thinking, and exposure to data. Lots of data.

And a good analogy. Some analogies have become abused and have led to catastrophic policies. Like the Big Push and the Take-off, or the analogy between national power and economic power.

One good analogy is "flying geese." Succinct and accurate. A better analogy (and perhaps the best): the "ladder" of development. What better way to encapsulate the idea of accumulating physical and human capital and know-how? How else to demonstrate the folly of getting to the top without passing through the rungs in between? So is economic development. You don't get there by making cars and buses and computers at once, and all by your lonesome (without those pesky foreign investors, who are sooooooooo demanding about your roads and bridges and power supply and sticking to your policies and...)

The first step up involves: rice, corn, coconut, chromium, and all that unsexy stuff. But then this allows a country to accumulate wealth and know-how, and climb up. At the end of the ladder: cellphones, MP3 players, medical instruments, even smart missiles, passenger jets, and sattelites. And last, but not the least, the end of poverty. One rung at a time.

Tuesday, September 19, 2006

Less is more

Here is a column by Federico Pascual from the Philippine Star, about fisheries in the Philippines. Since the Star is not known for permalinking, let me reproduce the column below in full (except for those pesky asterisks).

Full disclosure: I have just written a policy paper on fisheries in the Philippines, for the Economic Policy Reform and Advocacy Project of Ateneo de Manila and the USAID. Plenty of what I've written disagrees with the column. (When I have time I'll revamp my personal site and upload that paper.)

First, a few minor points: The writer blames the depletion of fish resources on "lazy Filipino fisherman." So it's possible to overfish while being lazy? That sounds fishy. The truth is a fisherman's life has usually been hard, because they are competing with other fishers to catch the limited fish. Therein lies the abuse of fish stocks, that is by no means unique, either to Filipino fishers, lazy fishers, or diligent fishers. Also: the net method is limited to small tunas. The large tunas - which is the bulk of tuna catch in the country - are caught by handline (fishing reel and rod) or longline (a long fishing line with a series of hooks).

Okay moving on to something more substantive: market-wise, isn't aquaculture obviously a threat to capture fisheries? This seems to have been completely missed by the writer. Farmed fish and wild-caught fish are substitutes. Now if fishers are able to switch to fish farming, then aquaculture would simply be a continuation (or even improvement) of their livelihoods. In practice though the skills for fishing and for fish farming are very different; one is neither a necessary not a sufficient preparation for the other.

Is fish marketing dominated by powerful traders dictating the price? A study by the ADB suggests that, contrary to this knee jerk opinion (the typical newspaper columnist sees monopoly power always and everywhere), fish trading is a competitive market.

Finally we get to the main point of the article, which has been provoked by a recent rationalization plan (which I have read) for the Department of Agriculture (DA). The plan calls for streamlining the DA bureaucracy as a whole (not specific to the fisheries bureau). That is, the principle is getting the DA out of private sector functions and local government functions. Now in the Philippines, fisheries management of inshore waters (0 - 15 km from the shore) has been delegated to local governments. Furthermore agricultural extension - including for aquaculture - has similarly been devolved. The rationalization simply calls for a structure more consistent with these realities. Moreover the DA will be renamed the Department of Agriculture and Fisheries, the more to emphasize the parity between crops/livestock and fish in the various functions of the reorganized Department.

The writer belongs to the all-too-common school of thought, that "more government" is the answer to every problem. Consider this telling quote: "The way to do it is certainly not to shrink BFAR. On the contrary, we should expand it and assign it food and industry targets commensurate to its upgraded status." Man oh man does that make me wince. Unfortunately this perspective misses the fact that government is often part of the problem. One of the best things that could happen to a society is breaking this culture of control.

Upgrade fisheries bureau to dep't, not downgrade it

BIG JOB AHEAD: Instead of downgrading the Bureau of Fisheries and Aquatic Resources (BFAR) as planned by supposed experts at the agriculture department, the administration should upgrade it into a full-fledged department.

Humanity having despoiled the land, the future of the world’s food supply is the sea. There lie in our waters untapped resources that far exceed the food (among other) requirements of the growing population.

Surrounded by one of the world’s richest marine food banks, and with a rice-and-fish-eating population facing a coastline twice as long as that of the United States, we cannot overemphasize the need to conserve and develop our fisheries and aquatic resources.

The way to do it is certainly not to shrink BFAR. On the contrary, we should expand it and assign it food and industry targets commensurate to its upgraded status.

The Arroyo administration may want to have the distinction of having originated a two-pronged approach to the stubborn food problem -- agriculture (land-based) and aquaculture (water-based).

AQUA VERSION: In agriculture -- as in farming -- we prepare the soil, plant, tend to the crops, wait, then harvest. That takes time, and time is not always an element that we can compress.

Out there in the open sea (at least in those areas still teeming with fish), our fishermen simply go out, throw their nets and pull in the fish. No planting, no waiting.

The simplicity of the operation is probably one of the reasons why many lazy Filipino fishermen had taken the sea for granted and abused it. Now the children of these misguided fishers have to sail out farther to catch anything.

Aquaculture is akin to agriculture in at least one sense: We also prepare a fish farm or aquatic site, choose the seedlings, plant, wait and harvest the fish (or such crustaceans as crabs and shrimps or some shellfish) after caring for them over a certain period.

The fish (used here as a generic term to include crabs, shrimps, shellfish and the like) are taken care of or cultured in man-made cages, pens or ponds or some other controlled enclosure.

The fish farmer operates in a controlled environment that more or less ensures predictable results -- provided no extraneous elements such as pest, poisoning, or such weather disturbances as typhoons wreck the plans.

RIVERS OF TUNA: The case of tuna fishermen is one good argument for giving our fisheries industry the attention and assistance it deserves.

Countless tuna swim together like a giant current, like a surging river, in known paths or patterns in the open sea. Their number is so great it defies counting.

It so happens that that great river of tuna passes right through our territorial waters! Allah is good, indeed!

Our fishermen know where these rivers of tuna pass in an endless current. If properly-equipped, all that our fishermen have to do is go to the site, throw their nets across the passing tuna and haul in as much as their boats can carry.

These fishermen do not have to plant and wait -- like farmers -- before they can harvest to their satisfaction.

But this Pinoy operation is almost primitive from the point of view of modern-day deep-sea fishing. For one, while our fishermen know the sea intimately, they are handicapped by their lack of adequate vessels, gear and marketing network.

A full-time fully-empowered aquaculture department can do wonders in making our fishermen fishers for the region and beyond.

PUEDE NA?: Inland, where we have lakes, rivers and impoundments, we have scattered family-owned farms that raise hito, tilapia, crabs, shrimps and other common species sold in wet markets and served in restaurants.

On their own, they may be “puede na” with their small-scale operation, but there is a dearth of research and development and state assistance that could enable them to improve techniques, increase yield and boost their income.

These small operators do not get the assistance and protection they deserve as contributors to the national food supply. This is just talking from an inward perspective, not yet dreaming of having these producers grow into exporters.

They cannot go into research as there is no time or money for that. Many of them just ask around, attend seminars and generally play it by ear. There should be a better organized government effort to reach out to them so they could become more productive.

LAKE PENS : In Laguna de Bay, the biggest lake in the country and the closest to the national capital, a confusion of fishpens and corrals is choking it.

Small fishermen whose families have depended for generations on the lake for their livelihood have found themselves shunted away from their traditional grounds.

Efforts to remove illegal and improperly built or located fishpens have failed, because some operators are too powerful to be touched.

I do not know if this is still true, but there was a time when even presidential guards were being used by some people close to Malacanang to guard their fishpens.

Environment and Natural Resources Secretary Angelo Reyes said days ago he was serious about restoring sanity to the lake, meaning he would remove pens that should not be there. But until we see results, we should treat that as just one of those plans.

LESSONS LEARNED: As in agriculture where most farmers do not have the means to take their produce to the market, small fish farm operators have to depend on middlemen to buy their catch at prices that the merchants dictate.

This is not to say that the government should usurp the role of private middlemen, but there should be some way to enable small operators to develop a marketing network of their own.

A full-blown aquaculture department will be in a better position to devise ways to give small operators access to easy credit, better seedlings (fry), better techniques. A department can help them work out a more efficient marketing scheme.

A new aquaculture department can learn many parallel lessons from the agriculture department under which it now functions.

VILLAFUERTE OBJECTS: In Congress, Camarines Sur Rep. Luis Villafuerte, chairman of the House committee on fisheries and aquaculture, has rejected the plan to downgrade the BFAR, calling the idea “ill-considered and foolish.”

“Our sense is that diminishing BFAR would be highly counterproductive,” the Bicol congressman said. “We may in fact have to eventually upgrade the agency and establish a new, full-grown department dedicated entirely to developing fisheries.”

He added: “Being an archipelago, fishing and allied industries are of strategic importance to the national economy. By our geographical nature, thousands of coastal communities also subsist daily on our marine resources.”

“In fact, in terms of value, fisheries now account for almost 25 percent of our total agricultural output. And going forward, we are counting on the sector to further enlarge its share (of gross agricultural yield).”

Data from the Bureau of Agricultural Statistics indicate that the country’s fisheries production grew rapidly from just 2.6 million metric tons in 1998 to over four million MT in 2005.

BFAR UNITS: Villafuerte pointed out that less and less land is becoming available for farming. “Thus, we really have no choice but to increasingly rely on fisheries and aquatic resources to produce adequate food supply, fight hunger and ease poverty.”

The agriculture department earlier disclosed a plan to lower BFAR from a line to a mere staff bureau, and to transfer its regulatory services to a new, smaller office. Its field offices, now self-operating, would be put directly under DA regional directors.

The Fisheries Code, also known as RA 8850, upgraded BFAR from a staff to a line bureau in 1998.

At present, BFAR also oversees the Fisheries Technology Center, National Freshwater Fisheries Technology Center, National Inland Fisheries Technology Center, National Marine Fisheries Development Center, National Integrated Fisheries Technology and Development Center, National Seaweed Technology and Development Center, Fisheries Biological Center and the Mindanao Freshwater Technology Center.

Wednesday, September 13, 2006

Collapse - of economic logic

There's another collapse going on - in economic policymaking of the Philippine government. Under the watch of a Ph.D. economist, no less.

For decades the Philippines had pursued a regime of "financial repression" involving interest rate ceilings, mandatory lending for private banks, and direct lending by government. In the mid-1980s this regime went on a phase-out. One of the last nails on the coffin was Executive Order 138, which prohibited direct lending by government agencies. The main credit intervention of the government (aside from Central Bank regulation) is now relegated to government financial institutions, such as the Land Bank and the Development Bank of the Philippines.

The advantage of such institutions is that they are specialized financial intermediation companies, whose objective is the bottom line - maximizing net present value. Of course that objective is undermined by the "soft budget constraint" i.e. they have the implicit fallback on government subsidy; moreover they receive preferential treatment (for example, the Land Bank is the official government fund depository). This arrangement though remains vastly superior to having the Department of Agriculture dishing out loans to farmers. For the latter, there is essentially no mechanism for accountability should financial disaster happen. And it has happened, as this columnn discusses.

Now the President has repealed the prohibition, opening the floodgates to direct lending by government agencies. Where is the logic, nay the sanity of this?

Friday, September 08, 2006

The bang versus the whimper

There are two ways to die. One is by the gradual deterioration of bodily function in terminal illness or senescence. The other is by suffering a trauma that causes a sudden collapse in bodily functions. The neomalthusian notion of an ecological collapse of modern civilization follows the latter analogy.

The collapse is deemed to be self-induced, hence the related notion of "overshoot": a society is able to exhaust its resource base at high levels of activity and consumption; then exhaustion is reached, leading to a sudden drop in consumption and population size. The standard reference for this phenomenon is still the 1970s work The Limits to Growth , which has recently been updated.

Economic theory isn't very welcoming of the concept of overshoot-collapse. Rather, the price system would ration out a disappearing (exhaustible) resource. As it gets scarcer, it gets harder to extract, so the cost and price go up, making people skimp on it more. More than that: if conditions of scarcity become certain, such that future prices are sure to increase, owners of long-term rights to the resource would (as rational decisionmakers) hold off on extracting a lot today in anticipation of better prices next year (or decade or...)

Think of oil. It is said that the Saudi's are just extracting the oil as fast as they can, to create the illusion of big reserves. Nonsense. If peak oil has been reached then oil prices are on a long term upward trend. The owners would therefore keep their oil extraction in check. (If you held reserves to a trillion barrels of oil, wouldn't you?)

Now two things can happen: either technological change succeeds (under the whip of high resource prices) in finding abundant substitutes; or it fails, and society lives with escalating prices, converging to what would in practice mean zero extraction of the resource. (Think of petrol at US$ 1,000 per liter.) The latter scenario is the whimper version of society's demise - a long slow adjustment back to near pre-industrial levels of production, consumption, and population. (Hey, nearly two billion people in the planet are already at this standard of living!) Interestingly, the whimper version gives a lot of time for society to undertake the social and technological innovations to deal with tightening resource scarcity. The bang version obviously doesn't.

So how will our civilization end?

Between the conception
And the creation
Between the emotion
And the response
Falls the Shadow

Life is very long

Between the desire
And the spasm
Between the potency
And the existence
Between the essence
And the descent
Falls the Shadow
For Thine is the Kingdom

Tuesday, September 05, 2006

Rehabilitating the neomalthusian nightmare

I'm finally getting around to reading Jared Diamond's Collapse. Unlike his earlier Guns, Germs, and Steel, this one apparently has had mixed reviews from economists. I'm a big fan of the latter, and was drawn in to the former by the same enthralling and deceptively simple style. Now I'll just have to see whether the Diamond's arguments stand firm or fall over. One question: is it a Malthusian book as many decry? Just after reading the first chapter I know it's not that at all.