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LINKAGES BETWEEN AGRICULTURAL TRADE AND GROWTH

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LINKAGES BETWEEN AGRICULTURAL TRADE AND GROWTH

Post by sol_drethedon on Wed Apr 24, 2013 2:02 am

LINKAGES BETWEEN AGRICULTURAL TRADE AND GROWTH.

Agricultural trade can be an important tool and catalyst for achieving agricultural and economic growth. Uganda's economic take-off will largely depend on how the country makes use of the opportunities made available by the trade sector and particularly in agricultural products. Improvement in Agricultural markets is of critical importance and urgent necessity for a country like Uganda that largely depend on agriculture.

Most of the literature on the linkages between agricultural trade and growth do not highlight the role of domestic trade. Domestic trade in agricultural products can stimulate agricultural growth and the entire economy through increased farm incomes. Take a simple example, assuming each Ugandan (30.7 million people) spends $1 per day on food, it would translate to $30.7million per day on food, $921million per month and $11.052 billion per annum to the Ugandan farmers. This would however depend on whether farmers have been released from the farm to the non-farm economy so that an optimal labor force remains in the farm sector. This important to raise agricultural labor productivity which is currently very low partly due to under employment. Still, the non-farm employment should be able to generate adequate incomes to enable households spend $1 per day per household member.

Economic theory postulates trade opportunities that exposure to international trade opportunities stimulates growth of the economy through increase in production and productivity. Hyla Myint developed the vent for supply theory of trade in 1958 in which he argues that international trade serves asa demand inducement that enables a country to mobilize underutilized resources to produce for export. Exposure to international markets also creates a new entrepreneurial class, spreads new technology and economies of scale scale due to specialization.

Uganda has abundant underutilized agricultural resources. Abundant land, fertile soils, reliable rainfall, varied temperature, water resources and a youthful population are all available. What the country needs are lucrative and reliable agricultural export markets to drive Ugandans into commercial farming. This leads to increased allocation of idle resources into agricultural production. It also leads to reallocation of resources from low value to high value activities which fetch better prices on the world market. Consequently, labor and land productivity increases in the new high productivity agricultural enterprises thereby promoting growth of the sector.

However, the major share of the benefits from trade accrues to households owning factors of production that are most in demand and, in general, these are not poor households. This does not mean that trade doesnot benefit the poor, but rather suggests that the poor derive the least direct benefits from trade. In so far as trade expansion fuels economic growth, aggregate demand in the economy increases and this benefits all.

Exporting commodities to other countries gives rise to trade incomes in the domestic economy. Dambisa Moyo (2009) notes that trade creates employment, improves trade balances, lowers the price of consumer goods through greater imports, generates incomes for the country's exports and generates incomes that accrue to government through tariffs and income taxes. All this goes a long way to improve standards of living and further stimulates domestic demand which is an impetus for further growth.

However, the ability of trade to stimulate growth of the economy depends on how trade income is distributed in the economy. Fair distribution of trade income generates new effective domestic demand thus accelerating further growth of the economy. Export earnings that are concentrated in the hands of a few large scale investors lead to lower growth of the sector and the economy due to low effect on aggregate demand. It is important therefore, that as agricultural trade expands and stimulates growth, equity issues are taken seriously. Large scale and foreign investments in agriculture are likely to have lower impacts on the over all growth of the economy. These can be encouraged in agricultural processing and other value adding activities rather than farming. Farm production should be developed along the lines of smallholder farming.

This view has been echoed by many other economists. Aldeman (1984) argues that the linkages between the domestically produced goods and small and middle class farmers are stronger than with large rich farmers. A large marginal share of their consumption is devoted to locally produced textiles, clothing, footwear and simple consumer durables.

International trade in agriculture is also important is also important in introducing local actors to a more competitive environment. Success in exporting or importing depends on increased efficiency, lowering costs and improving quality of the products. Competition from imports leads to short-run reduction in production of import-competing sectors but a flexible economy adjusts over time resulting into higher efficiency in the long run. The imports and products of income competing sectors become cheaper and of high quality thus benefiting the consumers.

Furthermore the development of markets for agricultural inputs enables smaller-holder farmers to increase output. The NSDS 2008 reports that 50% of farm households who do not use inputs attribute it to lack of knowledge. This shows that the agricultural inputs markets are underdeveloped. Efficient foreign inputs like feeds, fertilizers, breeds of animals and crops, can be obtained through international trade. Imports of foreign can promote agricultural growth. Improvements in agricultural inputs can enhance farmers' returns through major increases in yields which would promote agricultural growth.

The growth of urban agricultural markets through expansion of urban areas has impacted positively on agricultural growth in Uganda. The Kampala - Wakiso - Mukono axis provides a large market for foodstuffs. Livestock farming has expanded in Bushenyi, Mbarara, Mubende,
Kiboga, Luwero Nakasongola and other areas largely due to rising demand for beef and dairy products. Trade activities in food products like like maize grain in maize growing areas like Kamwenge, Masindi, Iganga; the distribution activities like assembling, storage, transportation; and the processing activities especially in Kisenyi-Kampala have all expanded earning activities for farmers, input suppliers, distributors and processors. Other major agricultural products traded include bananas, beans, vegetables, cassava, and coffee. Many farmers with access to urban markets are increasing acreage and improving farm practices as a means to increase marketable surplus.

The growth in export markets for agricultural products improves livelihoods of agricultural communities in Uganda. Exports of fish, cut flowers, maize, beans, all have positive impact on local communities. Livelihoods have improved for fishing and farming communities through increased export incomes. The flower industry has created many jobs for Ugandans especially in Wakiso district. However, there are serious issues of underpayment of workers which have been reported on flower farms, sugar cane and tea estates. Mere growth in output and exports without growth in incomes of the majority can not stimulate the overall growth of an economy. Such growth has no spread effects as the trade income goes disproportionately to the investors.


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sol_drethedon

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