Market Analysis, Technical Change and Income Distribution in Semi‐Subsistence Agriculture: the Case of Bangladesh

Abstract

AbstractFor the first time, the model developed by Hayami and Herdt is applied to determine gains from modern varieties of rice in Bangladesh and the distribution of these gains between consumers and producers. The results suggest that consumers' surplus is much greater than it would have been had the high yielding crop varieties (HYVs) not been introduced. By keeping the real price lower than it would have been otherwise, the modern varieties have tended to be income equalizing for urban consumers. The Hayami‐Herdt partial model even suggests that, given the relatively inelastic demand for rice in Bangladesh, the real cash income of producers has risen slightly as a result of these new technologies. In reality, however, the impact of these changes on incomes of farmers and the distribution of income between those involved in production is more complex. It is suggested that if a less partial view is taken and if account is taken of lower cost of obtaining home‐consumed produce, the increase in income may be greater. In any event, there are dangers in using such a partial model to predict the developmental consequences of technological changes affecting a staple crop, and attention needs also to be given to the possibility that the supply curve may not have the simple form and pivot in the way supposed by Hayami and Herdt. While the Hayami‐Herdt model is simple to apply, it is best used as a first approximation or starting point rather than a final solution. It ignores a number of criteria that could be important in assessing new agricultural technologies, such as their impact on the variability of benefits to producers and consumers and their consequences for sustainability of production. Furthermore, the Hayami‐Herdt model does not deal specifically with changes in factor shares in farm production. Nor does it consider the impact on income distribution of the ownership and control of critical input like irrigation and imperfection in the rural credit market. It is pointed out in our paper that the adoption of HYVs has been associated with important variations in factor shares in Bangladeshi rice production. Analysis of available farm level data indicates that the relative share of labour has fallen, suggesting an uneven distribution of gains from technological changes between the owners of non‐labour resources and those of labour resources. However, the absolute share of labour has increased, and it seems that rural employment has risen as result of the new technologies.