Economic Deveopment and
Structural Transformation of
Agriculture : Issues and
Prospects
Jung-Hwan Lee
Vice-president,
KREI
 Contents
1. Introduction
2. Agriculture in the Korea Economy
3. Transformation of Agricultural
Production
4. Transformation of Agricultural
Employment
5. Transformation of Farm Land Transfer
6. Concluding Remarks and Implications
Ⅰ. Introduction
`

Three
Dimensions
Adjustment
of
Agricultural
 Transformation of Agricultural Production
from Traditional Commodities to Highly
Income-Elastic
and
Exportable
Commodities
- Agricultural Growth Constrained
by Supply-Side Factors in LICs
by Demand-Side Factors in HICs
 Reallocation of Labor Forces
from Agriculture to Non-agriculture
- Regulated by Job Change,
Natural Factors,
New Entrants
 Transfer of Farm Land Operationship
form Small-Sized Farms
to Large-Sized Farms
Ⅱ. Agriculture in `the Korea Economy
1. Transformation of Industrial Structure
 Agricultural Share has been Declining
 Trans. Point A
Agriculture
≤
Service
≤
Manufacture
 Trans. Point B
Agriculture
 A & B in Production ⇒ PA, PB
A & B in Employment ⇒ EA, EB
Figure. Trans. of Industrial Structure in Korea
<Employment Structure>
Source: EPB. Annual Survey Report on the
Economically Active Population Survey.
Figure. Trans. of Industrial Structure in
Korea
<Production Structure>
Source : Bank of Korea(BOK), National Account.
 Sequence of Transformation in Korea
Table. Four Transformation Points & Time Lag
Unit:% (Year)
A
B
Change(Lag)
P
40.3(1965) 25.5(1973)
15(8)
E
38.4(1978) 24.6(1985)
14(7)
Avg(Lag)
39(13)
25(12)
 International Comparison
- Production Share
 International Comparison
- Employment Share
Table. The Year When the Ag.l Employment
Ratio Reached 40 and 16 Percent
Before 1800
1868
Time Length
(year)
More 70
Netherlands
1855
1950
5
Germany
1897
1957
60
U.S.
1900
1942
42
Denmark
1920
1962
42
France
1921
1965
44
Japan
around 1940
1971
about 31
Korea
1977
1991
14
Country
Britain
40%
16%
Table. The Year When the Ag. Pro.
Share Reached 40 and 7 Percent
Country
Britain
Netherlands
Germany
U.S.
Denmark
France
Japan
Korea
40%
7%
1788
1800
1854
1866
1850
1878
1896
1965
1901
1965
1950
1958
1969
1972
1969
1991
- Transformation Point
Time Length
(year)
113
165
96
92
119
94
73
26
Table. Agricultural Share at Trans. Points
Britain
Netherlands
United
States
Germany
Denmark
France
Japan
Korea
Average
In Production
BP
AP
28.0
39.6
n.a.
n.a.
Unit: %
In Employment
BE
AE
30.8
39.0
26.3
39.9
44.7
22.4
38.1
28.0
n.a.
41.2
36.0
42.7
40.3
40.8
n.a.
23.2
28.1
21.9
25.5
24.9
37.3
38.3
37.0
40.6
38.4
38.6
29.2
25.8
31.7
24.7
24.6
27.6
Source : Lee and Timmer(1993)
- Time
Lag between PA & EA, PB &
EBTable. Time Lag in Industrial Trans.
Point A
Point B
PA
Britain
1788
Netherlands 1790
EA
1788
1855
Lag
0
65
PB
1816
1860
EB
1816
1914
Lag
0
54
USA
1836
1898
62
1893
1917
20
Germany
1866
1914
48
1901
1925
24
Denmark
1874
1924
50
1930
1947
17
France
1888
1926
38
1916
1956
40
Japan
1916
1954
38
1928
1964
36
Korea
1965
1978
13
1973
1985
12
2. Productivity Difference
 Proty Rate(Ag. Proty / Ag. Proty) in Korea
Figure. Productivity Difference between Sectors
 International Comparison 
Ohkawa(1973)
- Productivity
Difference
Increases
Chenery(1986)
- U-Shape
 Industrial Structure & Turning Point
Ⅲ. Transformation of
Agricultural` Production
1. Agricultural Growth in Korea
 Phases of Agriculture Growth
Recovery 1990/92∼1995/97 2.2%
Negative Growth 1986/88∼1990/92 -0.6%
Slow Down 1975/77∼1986/88 1.1%
High Growth 1970/72∼1975/77 5.8%
 Contribution Rate by Commodity
- High Growth
by Rice & Vegetable,
4.4%, 12.4%
- Slow Down
by Rice & Grains,
0.2%, -5.0%
- Negative Growth by Rice & Grains,
-1.7%, -5.8%
- Recovery
by Vegetable & Livestock
4.6%, 6.7%
2. Transformation of Production
 Life Cycle of Demand for
Agricultural Commodities
- Luxury Goods⇒ Common Goods
⇒ Inferior Goods
 Life Cycle of Supply for Agricultural
Commodities
- Land Productivity
⇒ Labor Productivity
- Mechanization or HVA Commodities
Figure. Growth of Land and Labor Productivities
in korean Agriculture
 Korea Failed in Timely Transformation of
Agricultural Production
Ⅳ. Transformation of
Agricultural Employment
1. Paths of Transformation of Employment Structure
Job Change
Three Paths of
Transformation
Death & Retirement
Allocation
of New Entrants
 Job Change of Current Farm Labor Forces
Table. Rate of Job Change from Ag. to Non-Ag.
unit : %
Country
Germany+
France+
Netherlands+
Britain+
Denmark+
Japan+
Korea++
Move-Out
4.21
3.48
2.23
4.29
5.70
0.64
2.10
Source : Lee and Timmer (1993).
Move-In
3.86
2.38
0.26
3.25
4.35
0.78
0.89
Net-Out
0.35
1.10
1.97
1.04
1.35
-0.14
1.21
- Rate of Job Change by Age Group
Table. Rate of Job Change of Agricultural Labor Force
by Age
unit : %
Age 1962
15 - 19 5.26
20 - 24 3.50
25 - 29 1.87
Japan
1974
3.87
3.06
1.14
1987
3.96
3.25
1982
4.55
3.25
4.27
Korea
1986
3.12
4.78
6.28
1988
6.77
5.71
4.34
3.24
3.57
3.42
1.60
0.68
1.01
0.57
1.73
0.61
1.63
30 - 34
35 - 39
1.18
0.98
0.90
0.65
0.43
40 - 54
55 -
0.65
0.19
0.61
0.17
0.20
- U-turn from Non-Agriculture
 Sources of Decrease in Agricultural Labor
Force: Dominated by Natural Factors
Table. Sources of Decrease in Agricultural Labor Force
unit : %
Country
Job Change
Retire
Death
Re.&De.
Total
Korea
32.2
27.7
40.2
67.9
100
Japan
-5.2
73.0
32.2
105.2
100
Britain
21.0
n.a.
n.a.
79.0
100
Netherlands
45.2
n.a.
n.a.
54.8
100
Denmark
14.4
n.a.
n.a.
85.6
100
Germany
2.6
n.a.
n.a.
97.4
100
France
10.1
n.a.
n.a.
89.9
100
Source : Lee and Timmer (1993).
2. Trans. of Age Structure of Ag. Labor Force
 Age Profile Curve shows Agricultural Share of
Employment by Age Group
Figure. Shift of Age Profile Curve of Ag. Labor Force in Korea
- Share of New Entrant decrease more Fast
- Job Change of Current Labor is very Low
 Britain's Experience
Figure. Shift of Age Profile Curve of Ag. Labor Force in Britain
Source: Lee and Timmer(1993).
 International Comparison
Figure. Age Profile Curve of Ag. Labor Force:
International Comparison in 1975
<Panel A>
Source: Lee and Timmer(1993).
Figure. Age Profile Curve of Ag. Labor Force:
International Comparison in 1975
<Panel B>
Source: Lee and Timmer(1993).
Ⅴ. Transformation of
Farm
Land
Transfer
`
1. Urban Land Market and Farm Land
Price
 High Economic Growth Rate
⇒ Spurting Land Prices & Demand in Urban
Areas
⇒ Increases of Farm Land Prices
PA : Farm Land Price, RA : Farm Rent
PN : Urban Land Price
Table. Land Price Index and Rate of
Return to Farm Land in Korea
Non-agricultural
Land Price
Paddy Field
Land Price(A)
Imputed Returns
To Paddy Field(B)
Paid Rental
For Paddy Field
Rate of Rent Returns to
Paddy Field(B/A)
(C/A)
1974/6
1989/91
Inc.Rate(%)
100
292.2
6.5
100
285.3
6.4
100
137.3
1.9
100
193.7
4.0
13.5
5.0
6.5
3.4
-
Source : Lee J.H. et al. (1990), p.63.
 International Comparison
Table. Rate of Rent Returns to Farm Land :
International Comparison.
Unit: %
Britain
France
Germany
Netherlands
Belgium
Japan
Korea
1961
2.79
3.42
2.68
n.a
1.84*
n.a
n.a
1970
2.56
2.23
1.34
2.30
1.29
5.05
9.09
1. * denote 1960 and 1980, respectively.
Source : EUROSTAT and Dewit(1983).
Lee J.H. et al. (1990), p.63.
1981
1.71
1.84
0.85
1.64
0.90*
6.11
6.32
1989
2.04
2.33
1.35
1.67
n.a
5.36
4.40
2. Development of Farmland Tenure System
 Land Reform Act(1949)
- Farmland Distributed to Resident Farmers
on an Equity Basis
- 91.9% of Total Farmland Att. to Owner
Farms
 Tenant Farms Expanded since LRA
- Tenant Farming Area : 43.5% in 1997
- Farmland Transfer Depends on Lease
Table. Changes in Farm Size and dependence
on Leases: A Case Study
unit: %
1965-70 1970-75 1975-80 1980-84 1985-90
Rate of Expanding
Farms per Year
Depending on
Leasing
Rate of Contracting
Farms per Year
Dependence on
Leasing
3.1
4.3
5.2
10.0
11.2
33.5
51.3
62.1
75.8
83.4
1.8
4.0
7.8
8.5
n.a.
14.4
38.8
54.7
63.3
n.a.
Source : Lee and Kim. (1984), p.69 and 75.
For 1985-90, Lee, D.H. et al. (1990).
 Large-Sized Farms Depends on Lease
Figure. Changes in Share of Rented Area by Farm Size
<Korea>
Source: MAF, Agricultural Census.
Figure. Changes in Share of Rented Area by
Farm Size
<Germany>
Source: Koreanaga(1991), p. 155
Figure. Changes in Share of Rented Area by
Farm Size
<Japan>
Source: MAF, Agricultural Census.
 International Comparison
Figure. Share of Rented Area by Farm Size in
Developed Countries
Sourece: Korenage(1991), p. 151
 Why Lease is Prevailing?
- High Farmland Price
- Requirement of Farm Size Enlargement
3. Transformation of Farm Size Distribution
 Four Phases of Size Distribution in Korea
- By the mid-1960s
- By the beginning 1980s
- From the beginning 1980s
- From the end 1980s
Polarization
Mid-size Concentration
Upward Tilt
Polarization Revived
Figure. Changes in Farm Size Distribution in Korea
0. 3
1960 -
0 .5
1 .0
1 .5
2 .0
3.0(ha)
+
+
1965
1970 -
+
-
1975 -
-
1980 1985 -
+
1990
1995 -
+
-
 International Comparison
 (Polarization) ⇒ Mid Size Concentration
⇒ Upward Tilt ⇒ Polarization
Figure. Changes in Farm Size Distribution in Japan
0.5
1.0
1.5
2.0
3.0(ha)
1910 1920 -
-
+
-
1930 1940 1950 -
-
+
1960 -
+
1970
1980 -
+
-
Source : MAF, Statistical Yearbook on Agriculture and Forest
Figure. Change in Farm Size Dist. in Netherlands
0
5
10
20
50(ha)
1920
1925
-
1930
1935
1940
1945
+
1950
1955
1960
1965
-
1970
1975
1980
1985
1990
+
Source: W.Huizinga & D. Strijiker(1986) and Erostat.
 Why Farm Size Dist Transformed?
- In the Initial Stage of Economic Development
Non-ag Employment Limited
2nd or 3rd Sons Turn very Small Size
Owner / Tenant Farms or Laborers
Large Size Farms depend on Cheap Laborers
- Progress Stage of Economic Development
Non-ag Employment Increases
2nd or 3rd Sons not Create New Farms
Large Sized Farms Lease within Capacity of
Family Labor(Cheap Farm Laborers not
Available)
- Developed Stage
Farm Mechanization Proceed and Part-Time
Farming Available
Large Size Farms Can Pay High Rent
Large Size Concentration, Small Size Farms
Sustain
Table. Farm Size and Production Cost
Farm
Size(ha)
0.3
0.5
1.0
2.0
3.0
5.0
10.0
Cost
0.924 0.917 0.907 0.897 0.892 0.880 0.875
Elasticity
Cost
Index
111
106
100
93
90
85
78
Ⅱ. Agriculture in `the Korea Economy
1. Transformation Process of Agricultural Structure
2. Implications
 Hardship of Developing Countries
 New Income-Elastic Commodities Should
be Developed before Demand for
Traditional Stage Crops Slows Down
 Job-training and Retirement Program
Should
be
Conducted
to
Boost
Reallocation of Labor Force

Farmland Lease System Should be
Developed to Promote Farmland Transfer
Thank you!
Korea Rural Economic Institute
http://www.krei.re.kr
[email protected]