1.1 Introduction
This chapter examines the role of agribusiness and rural enterprises in economic growth and development in developed countries, transitional economies and developing countries. Some countries upgraded into industrialized economies from agricultural-backbone economies through sustainable economic development and growth over more than 200 years. The role of agribusiness enterprises was important to industrial development and economic growth in developing countries. There are debates on the role of agricultural sector in progress towards industrialization and economic development. Some suggest that the agricultural sector provided surplus rural labor to work in the industrial and services sectors during the process of industrialization and economic development. Further, agricultural exports often supplemented capital accumulation for industrialization. The development process involves the transfer of surplus capital from agriculture to the non-agricultural sector (Ghatak and Ingersent 1984). The sources of agricultural growth were and remain science and technology in discovering new farming methods and a unique combination of private and public endeavor. Land improvement, new farming methods and more research have all been necessary requirements for agricultural growth (World Development Report 1982). However, sources of growth in agriculture are not based in or on the land, given that the non-farming sector contributed to agricultural productivity at the times when structural changes were adopted in agriculture. Schultz highlights the importance of modernization of traditional agriculture and believes that agriculture can become a powerful engine in promoting economic growth (Schultz 1964).
The share of agricultural production to a country’s gross domestic product declines after the increase of the industrial and service sectors in the development process from agricultural-backbone to industrialized economy. The traditional agricultural sector played an indispensable role in maintaining livelihoods in developing countries in the past. Evidence shows that many developing countries have made significant progress towards a modern, commercial agricultural economy, increasing farmers’ income in the past three or more decades. During this period, agricultural development has contributed to economic growth and poverty reduction in some developing countries. Agricultural development retains an important role in sustainable economic development and food security for many developed countries.
The share of the population in rural areas is declining, because some developing countries are undertaking the process of urbanization. With urbanization, the rural share of poor households will decline, but based on current trends that share will not fall below 50% before 2035 (Ravallion 2001). As global extreme poverty has fallen, by one measure, from close to 2 billion people in 1990 to about 700 million today, the world has learned about anti-poverty strategies that work (Gill and Revenga 2016). The concentration of the world’s poorest shifted from East Asia in the 1990s to South Asia in the following decade. At present, the most severe poverty regions are Sub-Saharan Africa and South Asia. China’s rapid economic growth and a remarkable reduction in poverty has contributed to the overall development figures for poverty alleviation in the East Asia region, because China’s rural poor residents made up large proportion of the total poor in the region. China’s rapid economic growth and poverty-reduction success has been the major contributor to the reduction in world poverty (Roser and Ortiz-Ospina 2017).
Agricultural development will play very important role in economic growth and alleviating poverty for many developing countries in the future. In 2018, 820 million were hungry, up from 785 million just three years previously. In terms of United Nations Report 2019, world hunger is on the rise in absolute numbers. After decades of steady decline, the trend in world hunger, as measured by the prevalence of undernourishment, reversed in 2015, according to “The State of Food Security and Nutrition in the World 2019” report launched at the UN headquarters in New York. A World Bank report recommended inclusive growth to alleviate poverty. Even in those countries which have seen significant growth, a disproportionate share of the gains have gone to the better off, the upper 30%, or even the upper 10%, with many of the poor actually becoming worse off (Stiglitz 2017). In order to mitigate inequality, governments need to apply policies to stimulate adequate employment opportunities and improve the chances of decent livelihoods for the poor in a context of sustainable development.
Growth and development of agribusiness and rural enterprises are critically important to achieving the Sustainable Development Goals advocated by the United Nations. Successful agricultural development is essential to overall economic development and to meet the targets for poverty reduction and sustainable development. Agricultural development is central to the provision of food and the eradication of poverty and hunger. Agribusiness development plays an important role in increasing income for farmers, and it can create more work opportunities for rural labor.
Kirkpatrick and Nixson (1983) suggested that although attention has been focused in recent years on the need for agricultural development and rural rejuvenation, policy statements still emphasize the argument that industrial development is necessary to achieve high rates of economic growth and create more employment opportunities: industrialization is still the fundamental objective of economic development for the great majority of less developed countries (LDCs).
With increasing globalization and trade liberalization, more countries have been paying attention to agribusiness and markets for agricultural products. Stiglitz (2002) pointed out that focusing on the economy, globalization has three advantages: the demand for a country’s products is no longer constrained to its own markets; a country’s investment is no longer constrained to what it can save itself; and country’s producers can have access (at a price) to the most advanced technology. Smallholder farmers in developing countries have had difficulties in doing their agribusiness, playing a full part in international trade, in the past—it was large-scale agribusiness enterprises and adequately capitalized agribusiness enterprises that were able to access global value chain. However, when transaction costs are higher than profits for small-scale agricultural production for domestic markets, farmers are not incentivized to trade in agricultural products.
There is a gap in empirical study addressing the question of how agribusiness and rural enterprises drive inclusive growth to help developing countries to upgrade into emerging countries and then developed countries. Market and ...