FIN_EA_PPT_Ag Mech

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					A New Challenge for Agriculture in Low and
             Middle Income ECA Countries




                                             1
   Analytical Framework

   Trends in Farm Mechanization

   Rationale – understanding these trends

   Conclusions – where to from here




                                             2
   Trends in mechanization conditioned by

    ◦ Approach to reform
      European Accession Countries plus Turkey
      Transition Countries
      Truncated Reform Countries

    ◦ Resource endowments at beginning of reform
      Labor Intensive production
      Labor Extensive production



                                                   3
4
   Tractor Use
   Horse Use
   Combine Use




                  5
                              6.00

                                              1990   1995    2000    2005


                              5.00
Tractors/100 ha Arable Land




                              4.00




                              3.00




                              2.00




                              1.00




                              0.00
                                     LEEU   LETRA    LETRU    LIEU     LITRA   LITRU




                                                                                       6
                            12


                                        1990           1995    2000   2005

                            10




                             8
Horses/100 ha Arable Land




                             6




                             4




                             2




                             0
                                 LEEU          LETRA          LETRU     LIEU   LITRA   LITRU




                                                                                               7
                              0.6


                                                   1990           1995          2000     2005

                              0.5
Combines/100 ha Arable Land




                              0.4




                              0.3




                              0.2




                              0.1




                               0
                                    LEEU   LETRA          LETRU          LIEU          LITRA    LITRU




                                                                                                        8
   Wage Rates (and supply of rural labor)

   Interest Rates




                                             9
                       600.00

                                          1996   2000   2005


                       500.00




                       400.00
$US/month (2000=100)




                       300.00




                       200.00




                       100.00




                         0.00
                                LEEA   LETRU     LIEA   LITRA   LITRU




                                                                        10
11
             120.00


                             1996    2000   2005

             100.00




              80.00
% Interest




              60.00




              40.00




              20.00




               0.00
                      LEEA   LETRU   LIEA   LITRA   LITRU




                                                            12
   Tractor Imports




                      13
                                120.00


                                                LEEA     LETRU     LETRA          LIEA          LITRU    LITRA

                                100.00
US$/ha arable land (2000=100)




                                 80.00




                                 60.00




                                 40.00




                                 20.00




                                  0.00
                                         1996     1997   1998    1999      2000          2001     2002   2003    2004   2005




                                                                                                                               14
   Conceptual Framework

   Observed Trends in Capital/Labor Ratios (K/L)




                                                    15
16
                       50.00
                                              1997           2000          2005

                       45.00


                       40.00


                       35.00
Tractors/100 workers




                       30.00


                       25.00


                       20.00


                       15.00


                       10.00


                        5.00


                        0.00
                               LEEA   LETRA          LETRU          LIEA          LITRA   LITRU




                                                                                                  17
   I. Incentives to Invest
    ◦ Investment rates < $10/ha until land reform and
      market liberalization are well advanced.

   II. Subsequent Growth in Investment –
    Responds to Stronger
      Financial institutions
      Business Environment
      Competition Policy



                                                        18
19
   Wage rates – strongest influence, across all
    categories
   Nominal Interest rates – relevant for
    accession countries
   Access to Credit – important for combines
   Road Density – importance of farm machinery
    as a source of transport

   Interest Costs vs Machinery Costs ??


                                                   20
   Farm mechanization heavily influenced by
    approach to policy reform

   Labor costs may be more important than
    interest costs.

   De-mechanisation a major issue where there
    is a decline in both labor availability and
    machinery use.


                                                  21
   Labor Extensive Truncated Reform Countries
    ◦ Policy measures to promote investment in farm
      machinery based on reducing financial constraints
      (state credit and leasing programs, subsidized
      interest). Are these the real constraints ?

   Labor Intensive Transition Countries
    ◦ Potential for increased use of low cost farm
      machinery, particularly farm machinery produced by
      emerging countries.



                                                           22

				
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