Lesson 4 Dev Xtdy

2013
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JOMO KENYATTA UNIVERSITY

OF
AGRICULTURE & TECHNOLOGY
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SCHOOL OF OPEN, DISTANCE AND eLEARNING

P.O. Box 62000, 00200
Nairobi, Kenya
E-mail: elearning@jkuat.ac.ke
HRD 2102 DEVELOPMENT STUDIES AND ETHICS
LAST REVISION ON July 9, 2013
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HRD 2102 Development Studies and Ethics

This presentation is intended to covered within one week.
The notes, examples and exercises should be supplemented with a good textbook. Most of the exercises have
solutions/answers appearing elsewhere and accessible by
clicking the green Exercise tag. To move back to the same
page click the same tag appearing at the end of the solution/answer.
Errors and omissions in these notes are entirely the responsibility of the author who should only be contacted
through the Department of Curricula & Delivery
(SODeL) and suggested corrections may be e-mailed to
elearning@jkuat.ac.ke.
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JKUAT: Setting trends in higher Education, Research and Innovation
LESSON 4
The Role of Agriculture and Industry in
Learning Outcomes
A study of this lesson should enable students to:
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Development
Develop a deep understanding of agriculture in Economic
Development
Distinguish the role of agriculture and industry
Describe the problems faced by the agricultural sector
Discuss the advantages of small scale industries
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Discuss the obstacles to industrial development in Devel-
oping countries
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Describe challenges of Industrialization to Human Development
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4.1. Introduction
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Agriculture contributes a large proportion of the gross domestic

product in many developing countries and it is therefore relatively easier to achieve a higher rate of economic growth by
expanding agriculture. Thus, for example, if agriculture contributes 75% of Gross Domestic Product (GDP) and industry
constitutes 25% of GDP then it is easier to achieve a target
rate of economic growth by expanding agriculture. Agriculture
is a more appropriate activity to develop since most developing
countries are labour surplus economies. Agriculture, therefore,
facilitates a fuller utilization of the resource base and provides
greater employment opportunities.
Increasing agricultural output and incomes is often a prerequisite for the expansion of the industrial sector since as workJKUAT: Setting trends in higher Education, Research and Innovation
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ers in the agricultural sector earn higher incomes, particularly
smallholder producers, their demand for manufactured goods
will increase and there will be greater scope for establishing industries. This implies that the rate of industrialization will to
some extent depend on how rapidly agricultural incomes are
increasing. Continuing economic development in urban areas
will considerably restrict the domestic market for manufactured
goods. Increasing the purchasing power of rural areas as a result of expanded agricultural output will raise the demand for
manufactured goods.
An increase in agricultural incomes can boost government
revenues especially where the agricultural sector forms a broad
base for taxation. This revenue could enhance economic, social
and infrastructural development. A number of industries are
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based on agricultural raw materials such that an expansion of
industries relies on more raw materials being produced. The
textile industry, for example depends on cotton and wool production. The development of domestic agricultural would, in
addition, reduce domestic reliance on improved raw materials.
Agricultural development is an important step towards self
sufficiency in food production, which is important in keeping a
growing population alive. In addition this would save on valuable foreign exchange being used on food imports. The increase
in agricultural production should be at a higher rate than the
rate of increase in food demand in order to avoid increases in
food prices and the need to import food from abroad.
Increased agricultural production will stimulate forward linkages with other sectors of the economy through demand for
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transport, services, marketing and processing as well as some
backward linkages in the form of farm inputs and equipment.
Agricultural products often constitute significant exports in
developing countries. Agriculture therefore provides the needed
foreign exchange to import essential inputs especially of capital
goods. These capital goods facilitate the industrialization process and tend to be in short supply in developing countries. As
a country industrializes, the proportion of agricultural exports
in its total exports is likely to fall.
The agricultural sector also contributes an important source
of savings. Since in many developing countries a considerable
proportion of national income is derived from agriculture, in the
short run at least, the savings potential will be in the agricultural
sector. Savings are vital for economic growth in that they are a
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source of vial investment funds.
The agricultural sector also provides productive employment
in many developing countries. This is especially so where the
agricultural production technology has remained fundamentally
labour-intensive. Increased emphasis has also been placed on
employment creation in the agricultural sector in given the high
rate of rural urban migration and the inability of urban-based
economic sectors to create sufficient employment.
4.2. Problems faced by the agricultural sector in developing countries
i) Agricultural products are subject to frequent price fluctuations, which in turn lead to fluctuations in farmers
incomes.
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ii) Agricultural products are subject to long run declining
terms of trade compared to manufactured goods. The impact of this factor is worsened since developing countries
mainly export agricultural products and import highly priced
manufactured goods.
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iii) Developing countries usually depend on the export of one

or two main agricultural products, which make their economies
particularly vulnerable to changes in international economic conditions. For example, if a country is heavily
dependent on coffee exports and world coffee market prices
decline sharply that country export revenue will also fall
substantially.
iv) The agricultural sector is particularly subject to the law
of diminishing returns especially in developing countries
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where population pressure on land is high leading to disguised unemployment.
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v) Agricultural products from developing countries are faced

by protectionist barriers such as tariffs from developed
country markets., developed countries seek to achieve selfsufficiency in food production and to protect the employment of their farmers. Such protectionist measures limit
the growth of agricultural exports in developing countries
and the potential that such benefits would provide.
vi) Many farmers in developing countries still use inefficient
traditional methods of production such as land fragmentation, which severely limits increase in productivity in
agricultural sector.
vii) Marketing channels for agricultural products in many deJKUAT: Setting trends in higher Education, Research and Innovation
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veloping countries are inefficient and inadequate. Many
products are marketed by marketing boards, which are
often plagued by managerial problems, corruption and inadequate finances to effectively exercise their functions.
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viii) Many farmers in developing countries are subsistence farmers and lack the necessary capital and resources to effectively implement modern agricultural development such as
the use of mechanized agriculture.
ix) The agricultural sector is particularly vulnerable to natural disasters such as floods, droughts, diseases and pests,
and this leads as wide annual fluctuations in output.
x) Agricultural production is seasonal by nature and hence
the agricultural sector is characterized by seasonal unemployment. The seasonal nature of agricultural employment
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xi) The discovery of synthetic products has contributed to

some extent to the replacement of some agricultural commodities such as sisal. This has in turn reduced the demand for these agricultural commodities.
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contributes to many individual seeking jobs in alternative
sectors that provide relatively stable incomes.
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4.2.1. Policies to improve agricultural sector

i) Use of buffer stocks and buffer funds where necessary in
order to stabilize agricultural prices and incomes.
ii) To deal with declining terms of trade developing countries
should diversity their economies by improving their industrial base and move into non-traditional lines in agriculture, such as, horticulture. In Kenya, for example, successJKUAT: Setting trends in higher Education, Research and Innovation
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ful diversification has been achieved in Kenya with manufacturing exports becoming more important in terms of
their contribution to the export sector. Developing countries can also diversify their economies by further processing of commodities instead of simply exporting raw materials.
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iii) The use of more efficient methods of production should be

encouraged by educating farmers through extension services. Extension services will ensure that the results of
agricultural research reach many farmers. Extension workers can, therefore, be important change agents. In order
to be successful extension services should avoid being excessively bureaucratic and should also focus on providing
favourable conditions such as prices to encourage farmJKUAT: Setting trends in higher Education, Research and Innovation
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ers to adopt technologies that have been demonstrated.
Extension workers should both transmit knowledge and
promote the adoption of new technology.
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iv) Credit facilities should be provided to farmers in terms

of soft loans to enable them to purchase needed capital
inputs. Micro-finance institutions can play a valuable role
in this regard in developing countries, as an co-operatives.
v) A more liberalized system should be introduced where the
private sector plays a role in production, marketing and
processing. This will help to overcome the inefficiencies
that have been associated with marketing boards in developing countries.
vi) Research facilities should be developed to increase crop
output and improve crop quality. Agricultural research
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is a major factor that contributes to greater agricultural
productivity. Such research can focus on aspects such as
irrigation practices, crop rotation and optimal planting
times. Domestic agricultural research is vital in adopting
imported technology to local conditions.
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vii) Where funds are available, marginal lands should be irrigated in order to reduce pressure on fertile land and to
deal the operation of the law of diminishing returns.
viii) Markets should be diversified to non-traditional markets
and by regional integration efforts. Kenyan exports have,
for example, been concentrated in the markets of the European Union and the East African region. Economic integration efforts such as COMESA and the East African
Community provide prospects for more diversified exports
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markets.
4.3. The Role of Industry in Development

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ix) Prompt payments to farmers should be facilitated since

the delay of farmers payments by the government is major
disincentive to agricultural production.
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Industrialization refers to the process of transforming raw materials, with the aid of factors of production into consumer goods
or new capital goods, which permit further production. Broadly
speaking, industrial activity includes manufacturing, mining and
construction. In many developing countries, however, smallscale industries engaged in activities such as handicraft production are prevalent.
Industry is important in development for the followJKUAT: Setting trends in higher Education, Research and Innovation
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ing reasons:
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i) Developing industry constitutes a fundamental way of achieving a diversification of the economy. This is especially
important in the case of developing countries, which are
often heaving dependent on one or two primary products.
Industrial development would reduce reliance on primary
production.
ii) The demand for primary products is income inelastic and
is therefore, not likely to increase proportionally as income
rise. The demand for industrial products, on their other
hand, is more income elastic and thus developing industry is a good long run strategy since world demand for
industrial products is likely to increase as income rise.
iii) The output of industry is subject to fewer price fluctuaJKUAT: Setting trends in higher Education, Research and Innovation
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tions than agricultural output, essentially because the demand and supply for industrial output is more price elastic
than that of agricultural products. Industrial production
is, therefore, associated with a more steady income for
products.
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iv) The establishment of export promotion industries especially in labour-intensive manufacturing is a good way of
generating foreign exchange and strengthening the balance
of payments, especially in the long run.
v) Industry can be an important source of employment that
is not seasonal. This is especially the case of small scale
labour intensive industries.
vi) Industry plays an important role in the development of
other sectors by the provision of vital inputs, for example,
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machinery for the agricultural sector. In addition, industry
has backward linkages with sectors such as agriculture by
adding value to agricultural output as in the case of food
processing.
vii) Developing countries in some cases suffer from a shortage
of fertile land and agriculture already experiences diminishing returns. The scope for substantial increases in productivity is hence limited in the agricultural sector. Industry should therefore be developed since productivity
increases are more likely in industry than in agriculture.
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4.4. Interrelationships between Agricultural and Industrial Development
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Debates have centered around the relative importance to be assigned to agriculture versus industry. But this dichotomy is often
overdrawn. Experience has shown the limitations of overemphasizing industrialization, and it is increasingly recognized that
agricultural progress must have a vital role in the development
process. The earlier confrontation of industrial development versus agriculture has been shown to be a false issue, and the concern now is rather with the interrelationships between industry and agriculture and contribution that each can make to the
other.
In the LDCs, more people are engaged in agriculture for
each livelihood in the industrial and other sectors of the econJKUAT: Setting trends in higher Education, Research and Innovation
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omy. Agricultural growth provides food for the growing nonagricultural labour force and raw materials for agro-based industries, stimulates domestic demand for industrial goods, increases
savings and tax revenue to be utilized for further development,
earns more foreign exchange to finance imports of capital, intermediate goods and raw materials for industrialization, and
facilitates the development of labour-intensive village, small and
medium industries in rural and urban areas.
Since agriculture provides employment to more than 70 per
cent of the population in the early stages of development, increases in agricultural production and productivity raise rural
incomes. Rising rural incomes have strong multiplier effects
in that they increase the demand for domestic non-agricultural
goods and services which, in turn, increase the incomes of those
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providing the goods and services.
As rural incomes rise due to increasing agricultural yields,
the increase in the domestic demand for industrial goods brings
rapid gains in industrialization. Besides, increases in industrial
output of consumer goods needed by the rural population, the
output of fertilizers, pesticides, agricultural tools, implements,
and other intermediate manufactured goods required by the farm
sector also increases. Moreover, with the diversification of agricultural activities, a number of labour-intensive village and small
enterprises are set up in the rural areas. These provide further
fillip to industrialization.
When there is agricultural progress, some of the resources
for industrialization come from agriculture. In fact, increased
agricultural productivity implies a large marketable surplus and
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a redistribution of income in favour of the rural sector. Industrialization requires the reallocation of funds towards the modern
sector along with rising agricultural incomes. Rising farm incomes are mopped up through land taxes and betterment levies,
and the mobilization of rural savings through savings drives and
such financial institutions as cooperative banks, rural banks, etc.
they play an important part in channelising rural savings for industrialization.
Increasing yields of agricultural products for exports help
finance large imports of raw materials, intermediate and capital
goods for industrial production. Similarly, by raising their food
production, the LCDs save the foreign exchange for industrial
development.
On the other side, industrialization favorably affects agriculJKUAT: Setting trends in higher Education, Research and Innovation
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tural development in a number of ways.
First, with industrialization incomes rise rapidly which increases the demand for such agricultural commodities as milk,
vegetables, eggs, poultry, etc. since the production of such commodities is labour intensive, agricultural production is greatly
increased without enlarging farm acreage. This, in turn, provides more work to the rural population and raises incomes.
Third, industrialization followed by urbanization opens vast
job opportunities to the rural people who remit money back to
the home. This, in turn, utilized for buying inputs for farming or
raising cattle, poultry, fisheries, etc. With improved means for
transportation due to industrialization, markets expand which
facilitate the sale of such agricultural products at remunerative
prices in the towns. Moreover, rural people living in villages
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near the towns and cities who work in city establishments also
continue various part-time jobs at home which further raise their
incomes.
Fourth, when urbanization follows industrialization, it provides larger facilities for education, travel and contact with new
things and ideas which widen the horizon of the rural people
change their attitudes towards life and lead to modernization.
Finally, industrialization provides a wide and expanding range
of consumer goods which encourages the agriculturists to increase farm produce. This, in turn, tends to raise their incomes
to enable them to buy the consumer goods.
Thus both agricultural and industrial developments are interrelated and each affects the growth of the other ways mentioned
above. The LDCs should, therefore, achieve the harmonious deJKUAT: Setting trends in higher Education, Research and Innovation
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4.5. Advantages of small scale industries in developing

countries
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velopment of agriculture and industry for a steady growth of the
economy.
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i) Many developing countries offer small markets measured

in terms of purchasing power. Thus, small-scale industries
are more appropriate since large-scale industries will find
it difficult to operate economically on the basis of narrow
domestic markets.
ii) Small-scale industries have the advantage of employing relatively more labour, that is, of having a higher labour intensive production. This is important in developing counties, which are labour surplus economies with a high degree
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of open and disguised unemployment.
iv) Risky new products are best tried out on a small scale
first.
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iii) Less capital is required to start up small scale industries.
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v) Small-scale industries encourage local entrepreneurship, which

provides a good balance to the high degree of foreign ownership prevalent in many developing countries.
vi) Small-scale establishments facilitate the dispersal of industries into rural areas. This ensures employment opportunities are more evenly spread throughout the country and a
contribution is made towards a more equitable distribution
of income between regions.
vii) They may have a direct effect on income distribution by
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viii) They contribute to economic independence since largescale enterprises often require increased dependence on foreign firms.
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spreading economic purchasing power among a larger number of entrepreneurs.
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4.5.1. Obstacles to industrial development in developing countries

i) Lack of adequate financial markets
Savings are necessary in order to facilitate physical capital
formation, which in turn is vital for industrialization. Lack
of developed financial markets in developing countries constitutes an impediment to industrial development. Capital markets in many developing countries are rudimenJKUAT: Setting trends in higher Education, Research and Innovation
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tary, thereby making it difficult to raise money through
share issues. Many people still do not channel their savings through financial intermediaries.
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ii) Limited availability of credit
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Many developing countries experience a shortage of industrial credit especially for long-term projects. This makes
it difficult to finance some critical industrial projects such
as the purchase of machinery. In addition, access to short
term credit from commercial banks may be restricted by
high interest rates and need to provide substantial security
for loans. Offshore borrowing or borrowing abroad is also
an unrealistic option for the majority of small industrial
firms in developing countries.
iii) Shortages of energy
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This can constitute a significant obstacle to industrial development especially where energy sources such as electricity are expensive and supply is insufficient or frequently interrupted. Electricity, for example, is usually a significant
input in the production processes of manufacturing firms.
Importation of electricity may not be a viable option for a
country in the short run whereas use of private generators
may substantially raise the costs of production.
iv) Lack of skilled labour
Developing countries often have an abundance of unskilled
labour. While industries may use some unskilled labour in
their production processes, they also require a certain level
of skilled manpower in order to be effective. Skilled labour
may include, for example, welders and repair specialists.
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v) Lack of entrepreneurial skills
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When shortages are filled by less trained workers, labour
productivity declines and units of costs of production will
raise. Wages of skilled labour which is in short supply are
also likely to rise compared to the general level of wages.
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Entrepreneurial is the risk-taking and organizing factor or

production. This factor of production plays an important
role in the industrialization process but is often in scare
supply in developing countries. Although is to some extent
possible to rely on foreign entrepreneurship, many developing countries are reluctant to do so because of the fear
of foreign domination of their economies.
vi) Inadequate development of infrastructural facilities
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The infrastructural facilities in many developing countries
such as roads and ports are either inadequately developed
in certain regions or are in a state of disrepair. This factor
has considerably increased the cost of doing business in
these countries and has, therefore reduced the viability of
many projects in the industrial sector.
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4.5.2. The Challenges of Industrialization to Human Development

While the benefits of industrialization are significant in Kenya,
there have been a number of unintended outcomes over the years.
Industry has not only created welfare improving in Kenya but
it has also created many problems. The challenges of industrial
development to human development are the negative side effects
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that include:
Alienation a breakdown of social network and relation The increasing insertion of the market criteria into the
daily life.
Rapid urbanization with attendant poverty.
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ships.
Over-specialization and limited skill in industry.

The working poor and poverty traps among industrial work-
ers.
Child labour in small industries.
A crumbling infrastructure associated with industrial con-
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centration (poor housing, poor health, and low access to

education).
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Uneven development with development enhancing both
industry and environment pollution.
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Same of the above problems are a result of the interplay between industrialization and other factors, such as rapid population growth, the slow pace of agriculture development and
the structure of education system in the economy. Nevertheless, questions arise as to whether these unintended outcomes of
industrialization. Each set should be viewed as an addition to
what the government they are too a big price to pay.
Example . Discuss the major constraints facing African Agricultural exports?

Solution:
Subject to frequent price fluctuation
Subject to longrun declining terms of trade
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Subject laws of diminishing returns due to population pressure.
Inefficient marketing channels.
Development of synthetic raw materials
Existence of protectionist barriers is the international market
Lack of capital to develop agriculture to international standards.
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Review Questions
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Exercise 1.
The Agriculture sector has been described as
the key sector in Kenyas economic development. Briefly explain
the role that the sector plays in the economic development of a
country.
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Exercise 2.
What are the main economic problems that
affect countries which rely on agriculture?
Exercise 3.
Examine the role that industries play in developing countries.
Exercise 4.
What are the key obstacles faced by developing
countries in their industrial sectors and how can these obstacles
be overcome.
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References and Additional Reading Materials
2. Mier G.M. (1999) Leading Issues in Economic Development, New York: Oxford University .
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1. Thingan M.L. (2008) The Economics of Development and

Planning, Delhi Unida Publishers.
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Solutions to Exercises
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Exercise 1.
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Developing industry constitutes a fundamental way of achieving a diversification of the economy. This is especially important in the case of developing countries, which are often heaving
dependent on one or two primary products. Industrial development would reduce reliance on primary production.
The demand for primary products is income inelastic and
is therefore, not likely to increase proportionally as income rise.
The demand for industrial products, on their other hand, is more
income elastic and thus developing industry is a good long run
strategy since world demand for industrial products is likely to
increase as income rise.
37
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The output of industry is subject to fewer price fluctuations
than agricultural output, essentially because the demand and
supply for industrial output is more price elastic than that of
agricultural products. Industrial production is, therefore, associated with a more steady income for products.
The establishment of export promotion industries especially
in labour-intensive manufacturing is a good way of generating
foreign exchange and strengthening the balance of payments,
especially in the long run.
Industry can be an important source of employment that is
not seasonal. This is especially the case of small scale labour
intensive industries.
Industry plays an important role in the development of other
sectors by the provision of vital inputs, for example, machinery
38
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for the agricultural sector. In addition, industry has backward
linkages with sectors such as agriculture by adding value to agricultural output as in the case of food processing.
Developing countries in some cases suffer from a shortage
of fertile land and agriculture already experiences diminishing
returns. The scope for substantial increases in productivity is
hence limited in the agricultural sector. Industry should therefore be developed since productivity increases are more likely in
industry than in agriculture.
Exercise 1
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2013

JOMO KENYATTA UNIVERSITY

SCHOOL OF OPEN, DISTANCE AND eLEARNING

LAST REVISION ON July 9, 2013

HRD 2102 Development Studies and Ethics

JKUAT: Setting trends in higher Education, Research and Innovation

HRD 2102 Development Studies and Ethics

Develop a deep understanding of agriculture in Economic

Discuss the obstacles to industrial development in Devel-

HRD 2102 Development Studies and Ethics

JKUAT: Setting trends in higher Education, Research and Innovation

HRD 2102 Development Studies and Ethics

Agriculture contributes a large proportion of the gross domestic

HRD 2102 Development Studies and Ethics

HRD 2102 Development Studies and Ethics

HRD 2102 Development Studies and Ethics

HRD 2102 Development Studies and Ethics

HRD 2102 Development Studies and Ethics

iii) Developing countries usually depend on the export of one

HRD 2102 Development Studies and Ethics

v) Agricultural products from developing countries are faced

HRD 2102 Development Studies and Ethics

xi) The discovery of synthetic products has contributed to

HRD 2102 Development Studies and Ethics

4.2.1. Policies to improve agricultural sector

HRD 2102 Development Studies and Ethics

iii) The use of more efficient methods of production should be

HRD 2102 Development Studies and Ethics

iv) Credit facilities should be provided to farmers in terms

HRD 2102 Development Studies and Ethics

HRD 2102 Development Studies and Ethics

4.3. The Role of Industry in Development

ix) Prompt payments to farmers should be facilitated since

HRD 2102 Development Studies and Ethics

HRD 2102 Development Studies and Ethics

HRD 2102 Development Studies and Ethics

JKUAT: Setting trends in higher Education, Research and Innovation

HRD 2102 Development Studies and Ethics

HRD 2102 Development Studies and Ethics

HRD 2102 Development Studies and Ethics

HRD 2102 Development Studies and Ethics

HRD 2102 Development Studies and Ethics

HRD 2102 Development Studies and Ethics

4.5. Advantages of small scale industries in developing

HRD 2102 Development Studies and Ethics

i) Many developing countries offer small markets measured

HRD 2102 Development Studies and Ethics

iii) Less capital is required to start up small scale industries.

v) Small-scale industries encourage local entrepreneurship, which

HRD 2102 Development Studies and Ethics

4.5.1. Obstacles to industrial development in developing countries

HRD 2102 Development Studies and Ethics

ii) Limited availability of credit

HRD 2102 Development Studies and Ethics

v) Lack of entrepreneurial skills

HRD 2102 Development Studies and Ethics

Entrepreneurial is the risk-taking and organizing factor or

HRD 2102 Development Studies and Ethics

4.5.2. The Challenges of Industrialization to Human Development

HRD 2102 Development Studies and Ethics

Over-specialization and limited skill in industry.

centration (poor housing, poor health, and low access to

HRD 2102 Development Studies and Ethics

Example . Discuss the major constraints facing African Agricultural exports?