Input Credit Research Articles

Macroprudential Policy and Labor Market Dynamics in Emerging Economies

Emerging economies have high shares of self-employed individuals running owner-only firms who, in contrast to many salaried firms, have little access to formal financing and therefore rely on informal financing (input credit) from other firms. We build a small open economy real business cycle model with labor and financial market frictions where formal credit markets, informal credit, and the structure of the labor market interact. The model successfully replicates the cyclical behavior of sectoral employment, formal credit, and the main macroeconomic aggregates in emerging economies. We show that a countercyclical macroprudential policy that reduces formal credit fluctuations has positive though quantitatively limited effects on consumption and output volatility, but generates larger unemployment fluctuations in response to productivity shocks; the same policy increases labor market and aggregate volatility in response to net worth shocks. The link between input credit and the labor market structure---key for capturing the cyclical dynamics of labor and credit markets in the data---plays a crucial role for these results.

Vertical integration in West Africa's cotton industry: are parastatals a second best solution?

AbstractThis article provides a framework to compare market outcomes among vertically integrated monopsonies in the cotton sector of West Africa and alternative, more competitive market structures. Based on a principal agent framework, in the presence of factor market constraints, as well as capital market failure, efficiently operated cotton parastatals increase sector welfare and efficiency by providing input credits. In equilibrium, outcomes with the principal agent model suggest growers receive the reservation income to participate in cotton production while the principal (cotton company) extracts the surplus above the reservation income. Competitive markets entail more equitable distribution of benefits than with parastatal vertical integration, but credit and factor market constraints can still persist. Promotion of a competitive market system will not support cotton productivity growth unless stakeholders pursue complementary programs to develop credit markets and research and extension institutions. In the presence of current market failures, parastatals may be a second‐best solution.

Who Wants to Farm? Youth Aspirations, Opportunities and Rising Food Prices

SummaryWho wants to farm? In an era of land grabs and environmental uncertainty, improving smallholder productivity has become a higher priority on the poverty and food security agenda in development, focusing attention on the next generation of farmers. Yet emerging evidence about the material realities and social norms and desires of young people in developing countries indicates a reasonably widespread withdrawal from work on the land as an emerging norm. While de‐agrarianisation is not new, policymakers are correct to be concerned about a withdrawal from the sector: smallholder productivity growth, and agricultural transformation more broadly, depend in part on the extent to which capable, skilled young people can be retained or attracted to farming, and on policies that support that retention. So who wants to farm, and under what conditions? Where are economic, environmental and social conditions favourable to active recruitment by educated young people into farming? What policy and programmatic conditions are creating attractive opportunities in farming or agro‐food industry livelihoods?This paper explores these conditions in a context of food price volatility, and in particular rising food prices since 2007. To do so, it analyses primary qualitative research on the attitudes of young people and their families to farming in 2012, a time when food prices had been high and volatile for half a decade. In theory, assuming higher prices benefit small farmers, food farming should be more attractive since food prices started to rise in 2007. But this simple causal assumption overlooks both that in many developing countries, it takes considerable economic power – ownership or access to cultivable land and affordable credit for inputs – to turn a profit in farming. It also fails to take into account more sociological explanations governing work and occupational choice – status aspiration and merit on the one hand, and perceived risk on the other. These two explanations help to explain why young people from relatively low income families, particularly those most likely to innovate and raise productivity levels, do not perceive farming as a realistically desirable occupational choice.Based on analysis of interviews, focus group discussion and household case studies with almost 1500 people in 23 rural, urban and peri‐urban communities in low and middle income Asian, African and Latin American countries in 2012, this research digs deeper into some of the established explanations as to why youth in developing countries appear reluctant to enter farming, and identifies conditions under which capable and enterprising youth are being attracted to farming, and entry‐points for youth participation in policymaking around agriculture and food security.

Institutional Environment and Technical Efficiency: A Stochastic Frontier Analysis of Cotton Producers in West Africa

AbstractThis paper examines the effects of the institutional environment on West African cotton farmers’ technical efficiency (TE). First, key aspects of the cotton sector institutional environment are discussed, including input and credit access, and producers’ organisations. Then, a stochastic frontier production function, which incorporates technical inefficiency effects, is applied to farm level data collected in Benin, Burkina Faso and Mali. The survey includes farmers’ evaluations of the cotton sector institutional environment. Results suggest that institutional level features influence producers’ TE, besides farm‐level characteristics. Cotton growers who report a negative experience with the joint liability programme, who identify the cotton price mechanism or access to credit as the main constraints to performance, and who cultivate more hectares of cereals are technically more inefficient in producing cotton. Findings suggest that cotton farmers in Mali are less technically efficient in producing cotton than in Burkina Faso and Benin. Agricultural development policies focusing on reducing farmers’ financial stress, particularly through the establishment of adequate price mechanisms (i.e. higher farm‐gate prices and timely payments to farmers) and improvement in the input–credit markets should be encouraged to improve TE in West Africa.

Employment and Firm Heterogeneity, Capital Allocation, and Countercyclical Labor Market Policies

Many countries have large employment shares in micro and small firms that have limited access to formal financing and therefore rely on input credit. Such countries are mainly emerging and developing economies, whose business cycle dynamics are increasingly important for the global economy in light of the dramatic rise in international linkages and spillovers that have occurred over the last several decades. Emerging and developing economies implemented a host of countercyclical labor market policies amid the global financial crisis, but data limitations on high-frequency labor and job flows prevent a detailed empirical assessment of the effectiveness of these policies. To address this problem, we develop a business cycle model with frictional labor markets that is novel in light of its consistency with the employment and firm structure of emerging and developing economies. We use the model to assess the aggregate impact of key countercyclical labor market policies. We find that hiring subsidies and job intermediation services for large firms are particularly effective in aiding recoveries. Policies targeting smaller firms yield limited aggregate benefits and may even be detrimental to the recovery process. The labor market structure shapes sectoral allocation and explains the economy's differential response to policy.

How to Enforce Value-Added Tax? The Role of Inter-Sectoral Linkages

In the VAT system, formal traders report their purchases to the administration for a deduction in their tax bill. I model this third-party reporting feature of the VAT in an input-output economy and quantify it among different activities using a forward linkages index. The administration can reduce the size of shadow economy by reallocating visiting audits to backwardly linked activities and cross-checking VAT payments with input credit claims in forwardly linked activities. Empirical evidence from Indian service sector justifies the assumptions and suggests a significant increase in the tax compliance of forwardly linked activities following VAT adoption in 2003.

‘My hunger has brought business’: ‘efficiency’ and the de-moralizing logic of maize distribution in an era of market liberalization

The adoption of maize market liberalization policies in Zambia marked the beginning of a radical transformation of government institutions and ideologies. The maize marketing boards and input credit schemes that characterized the post-independence humanist project in Zambia were replaced by the ideology of ‘efficiency’ and a reification of markets as the vehicle to poverty reduction and food security. Using ethnographic and historical data, this article situates the ‘farming as a business’ development model within the broader context of this political economic transition. It shows how the interaction between the growing legitimacy of business-oriented maize farming and liberalized maize markets create conditions for a cycle of hunger in rural Zambia, by eroding the terms by which food insecure people acquire maize through piecework systems, loans, and food gifts.

Fostering demand-oriented service delivery? A historical reconstruction of first experiences with ‘private funding, public delivery’ extension in Benin

This paper examines newly emerging patterns of agricultural extension in the context of wider liberalization of agricultural input supply, marketing and credit provision in Benin. It assesses whether the promises of privatisation were met in the case of the Sasakawa Global 2000 project. Thus, it assesses the extent to which service delivery became demand-orientated, flexible and effective in linking of new technology with complementary institutional designs. In order to gain insight in the dynamics through which such outcomes may be realized, the study zooms in on the process through which the project evolved. It is demonstrated that the PSG 2000 Benin project did not contribute much to realizing the promises and expectations of privatized service delivery. An important conclusion is that whether services become ‘demand-oriented’ or not does not primarily depend on the formal funding and delivery arrangement, but rather on the quality of the process in which demand and supply are articulated and matched. ...

Introducing new agricultural technologies and marketing strategies: A means for increasing income and nutrition of farm households in Ethiopia

Many developing regions have excellent potential agricultural resources. However, historically, the population has become so concentrated in these regions that acute poverty and malnutrition now predominate. The food scientists’ response to the chronic nutrition problem has often been subsidized by bio-fortification with nutrition supplements or more recently cultivars with higher nutrient levels. Where much of the population is in this inadequate nutrition category as in the highland of Ethiopia, the supplements are neither financially feasible nor sustainable. The cultivars can provide a few critical nutrients but are not a comprehensive solution. To improve nutrition, it is necessary to increase income so that an increased quality and quantitative diet can be obtained. Here, a strategy to introduce Striga resistant sorghum varieties, inorganic fertilizers, tied ridges and inventory credit in the Qobo valley of Ethiopia is evaluated. Using the behavioralist criteria defined by the farmers as constraints, a mathematical programming model is built to analyze the effects of different potential combinations of technologies and supporting agricultural policies on the household nutritional gaps and on farmers’ incomes. Striga resistance alone has little effect unless combined with fertilization, water harvesting and an improved credit program. The credit program improvement involves the substitution of inventory credit for the existing input credits that are repayable at harvest. Inventory credit enables the farmer to take advantage of the seasonal price variation and repay after the prices have recovered from the usual price collapse at harvest. An integrated approach, involving the combined technologies of water harvesting, fertilization and Striga resistance along with inventory credit increases farm household income by 31% and eliminates under-nutrition except in extreme drought years (10% probability), during which public assistance will be still needed. Both the treatment of the nutritional deficits and the decision making criteria defined by farmers are expected to be useful techniques in other developing country technology analysis as well.

Farm Forestry Prospects Among Some Local Communities in Rachuonyo District, Kenya

Deforestation and degradation of productive lands are serious threats to the sustainability of forestry/agricultural practices in Kenya. In the last two decades farm forestry (FF) has been promoted through pilot projects among local communities as an example of sustainable land use. However adoption of FF is limited outside the project locations because FF improvement measures focused mainly on biological (e.g. succession, biodiversity and traditional industrial timber production) and technical concerns (e.g. material input delivery such as providing free tree seedlings for field planting) rather than local values, and interests and the constraints facing farmers. This study examined the local farm priorities and constraints and the prospects for the wider implementation of farm-level tree planting in four communities in Rachuonyo District. Using interviews with 597 randomly selected household heads, the study assessed farmer’s production assets and activities, land tenure, priority tree species and the constraints to growing trees on farms. Results show that farm labour is represented by a young population, 56.3% under the age of forty. They are mainly engaged in small-scale mixed cropping integrated with multipurpose trees and some livestock. Tree products contribute about 32% to household cash income, more than any other source (agricultural products, labour sales, etc). Females were more often household heads and had considerable influence over productive activities, making them an important target group in FF development. Farmers preferred exotic tree species due to their ability to provide short-term cash income, fuel and shade. Farmers’ concerns included population pressure on limited farmlands and the problem of credit for agricultural inputs. Given the feeling of secured tenure arrangement and influence of tree products on the household economy, farmers are likely to invest more in efficient land uses such as FF if consideration is given to local priorities.

Unexploited Food Production Potentials of New Varieties

The question of whether the intended gains in food production from new varieties have actually been realized by poor farmers has received little or no attention in the literature. This paper used a stochastic frontier efficiency decomposition methodology to derive the technical, allocative and economic efficiency measures for a sample of hybrid maize producers in western Ethiopia. The results revealed considerable underexploitation of the yield and profitability potentials of hybrid maize and indicated that farmers could increase production by an average of 26% if they all adopted the recommended management practices. Furthermore, adoption of the recommended management practices coupled with optimum use of inputs, especially fertilizer, would enable the farmers to reduce production costs by an average of 39%. Education, provision of input credit, and timely availability of critical inputs are positively and significantly related to the efficiency of hybrid maize production.

Land Rental and Sales Markets in Paraguay

This paper examines the claim that the land rental market can be an effective means of redistributing access to, if not ownership of, land to the rural poor, using Paraguay as our model. The land sales market is also examined. The land rental market in Paraguay's rural areas is found to be very thin, due at least in part to a lack of available credit for inputs. Renting-in substantial amounts of land is found to contribute significantly to household per-capita income.

IPM and Organic Agriculture for Smallholders in Africa

The markets for organic produce offer the opportunity for smallholders in Africa (and elsewhere) to increase their income through access to the price premiums paid in Europe and North America. Facing declining soil fertility, the high cost of off-farm inputs and the collapse of state or para-statal input credit schemes, organic farming offers a sustainable solution for resource-poor farming communities, quite apart from the lure of price premiums. The use of purchased inputs is already at a low level in the smallholder sector in Africa and this may allow farm produce to immediately meet organic standards. The principles of IPM can be applied to organic agriculture to achieve adequate pest and disease control with the restricted use of pesticides that is required for farm produce to meet organic standards. The paper describes some of the problems facing smallholders wishing to access organic markets and describes the IPM options available, which meet the standards of organic certification.

Japan’s Consumption Tax : Settled in to Stay

Now in its second decade, Japan’s consumption tax remains unpopular and controversial at home while hailed internationally for its functional structure.(1) The tax is fundamentally a value-added tax levied on the domestic sale or lease of goods or services. Exports are tax-free while imports are taxed when they enter the country. Although the tax base has narrowed since its adoption, through the expansion of the exemptions, it remains a broad-based tax, levied at a single rate of 5%. Small businesses are exempt from the tax. Those businesses that pay and collect the tax may use a simplified accounting structure to calculate input credits and thereby arrive at the amount of tax to be paid. The single low rate and the simplified accounting structure are features designed to promote equity and efficiency. They have not, however, improved the domestic acceptability of the tax.

The Changing Farming Environment in Tanzania: The Case of Selected Villages in Kilimanjaro

This study examines the l:hanging farming environment among the small­ holder farmers in Tanzania under the ongoing world-wide economic reform measures. Various economic reform measures being implemented have far-reaching effects on farming behaviour. Small farmers have increasingly done away with the production of the traditional expon crops and instead have shifted to the product of quick-selling crops such as vegetables and paddy. It was observed that most fam1ers are facing serious economic hardships. To cope with this dillicult situation. they have turned to the use of easily avairable supply of manure. seeds and chemicals. There is also environmental degradation due to land-dearing for fuel, farming and building materials. Liberalization of agricultural marketing has also had serious repercussions. Farmers are unable to obtain credit for farm inputs. This is partly due 10 the marketing cooperatives' fail­ ure to compete with other buyers. Already cooperatives have lost market share for food crops to private traders/dealers. Fam1crs specializing in paddy production under controlled irrigation practices have better prospect than others. Their income ha~ increased. This situation has attracted civil servants to go back for farming.

The promotion of maize fertiliser packages: A cause of household food insecurity and peasant impoverishment in high rainfall areas of Zimbabwe

Child malnutrition is a continuing problem in Zimbabwe's communal areas. These include some high rainfall areas, which make a contribution to the country's maize surplus during non‐drought years. A survey of farmers and extension workers in four high rainfall communal areas was carried out to investigate the effects of following recommended practices for maize production on household economy and food security. Thirty‐two per cent of communal farmers had applied all the officially recommended fertiliser to their 1990/91 maize crop, often by obtaining these inputs on credit in lieu of grain sales receipts from the subsequent harvest. Yet. yields were so low that 48 per cent of these farmers would have been unable to retain sufficient grain to satisfy their families’ minimum requirements, if they had reimbursed the full cost of the input credit. The majority (64 per cent) of farmers had deviatedfrom the recommended practice by adopting ‘low external input strategies’. A key feature of most of these strategie...

Changes needed in agricultural policy for female‐headed farm families in tropical Africa

ABSTRACTThe decline in per‐capita agricultural production has been reversed somewhat in tropical Africa by the structural adjustment programs which have increased producer prices, liberalized marketing and devalued currencies. But the 30% of smallholder farm households which are female‐headed will not be assited much due to their special constraints of shortages of labor and credit, lack of extension visits and appropriate labor‐saving technologies. For these households, the authors argue, improved extension services, credit for agricultural inputs, small ruminant animals and poultry, labor‐saving devices and craft inputs will be necessary to increase their incomes and levels of living.

Changes needed in agricultural policy for female-headed farm families in tropical Africa

The decline in per-capita agricultural production has been reversed somewhat in tropical Africa by the structural adjustment programs which have increased producer prices, liberalized marketing and devalued currencies. But the 30% of smallholder farm households which are female-headed will not be assisted much due to their special constraints of shortages of labor and credit, lack of extension visits and appropriate labor-saving technologies. For these households, the authors argue, improved extension services, credit for agricultural inputs, small ruminant animals and poultry, labor-saving devices and craft inputs will be necessary to increase their incomes and levels of living.

Measurement of resource transfers from agriculture: brazil, 1950-1974

This article provides measure of the substantial role Brazilian agriculture has played in the formation of urban capital during the Import Substitution Industrialization period as result of implicit transfers. These implicit transfers were associated with divergences between the Intersectoral Terms of Trade and their shadow-value. The work shows that as industrialization intensified, from the mid 50's on, these divergences increased, so that very large transfer of resources from agriculture took place. A highly subsidized rural credit policy (for modern input purchase) has been in operation since the mid 60's. However, while the policies affecting the agricultural product prices have taxed all producers evenly, the credit policy has only benefited the already well-off and most technologically advanced sections within agriculture. Thus, the rapid capital formation and the implicit tax burden, which the product price and input credit policies implied, have been highly selective and discriminatory, not only between agricultural and non-agricultural sectors as is usually admitted a priori, but also within agriculture.

An Input Credit Programme for Small Farmers in West Malaysia

An Input Credit Programme for Small Farmers in West Malaysia