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Economic and Social Upgrading in Agriculture Sector: A Case of South Asia

Manoj Sharma

Department of Agriculture Economics and Agribusiness Management, Agriculture and Forestry University, Nepal

Abstract: Agriculture sector is central to economic development of South Asia in which more than forty percent people relied for their livelihoods. The paper adopted the parsimonious method proposed by Bernhardt and Milberg [1] to analyze the economic and social upgrading of the agriculture sector taking five countries of South Asia-Bangladesh, India, Nepal, Pakistan and Sri Lanka during the period of 2003-2017. Findings revealed the discrepancy in social and economic upgrading of South Asia within the agriculture sector. However, the region experienced the overall upgrading of the agriculture sector. Bangladesh, India, Pakistan and Sri Lanka were categorized into economic upgraders while Nepal fell under intermediate case. Likewise, Pakistan and Nepal were categorized into social upgraders and other countries were categorized into intermediate cases. Robustness test showed the exact same categorization for Pakistan only. Both symmetric and asymmetric methods yielded the same categorization of countries, but the method of Kaplinsky and Readman [2] led to a significantly different diagnosis except for Pakistan. From the view point of policy, Bangladesh, Sri Lanka and India should pursue policy actions to upgrade social aspects of agriculture sector too, while Nepal should mainly be concerned with agricultural production and exports. Pakistan as an upgrader in both social and economical aspects of agricultural sector should equally prioritize both aspects to maintain the balance.

Keywords: social upgrading, economic upgrading, agriculture sector, South Asia

Received October 19, 2020; Revised November 20, 2020; Accepted November 29, 2020

Citation: Manoj Sharma, Economic and Social Upgrading in Agriculture Sector: A Case of South Asia. Journal of Applied Agricultural Economics and Policy Analysis, 3 (1). 20-27. January 2020. doi:10.12691/jaaepa-3-1-4

1. Introduction

Agriculture sector is important for the lives and livelihoods of South Asia, and also for global and regional food security. About 41.70% of the population relies on the agriculture sector, and remains an important part of the economy (16.23%) [3]. The region has increased its trade and growth with substantive numbers, after the trade liberalization of the 1990s. Over 2003–2017, the region’s exports to the world increased on an average by around 9.59% per annum, reaching $587.514 billion, about five times of their level at the beginning of the first decade. Likewise, the exports of foods have also increased with an annual average growth rate of 10.85% between 2003 and 2017. The share of the agriculture sector in GDP of Southern Asia has declined from 22.13 to 15.13% between 2003 and 2017 [4]. Now, the agriculture sector shares 11.30% of exports in the region while 4.88% in imports [3].

South Asia is also one of the least integrated regions in terms of trade and regional value chain (ADB, 2015). Ahmed, Suleri, and Javed [5] pointed out the four major constraints in South Asia- lacking functional economic corridors; mistrust among neighboring countries; non tariff barriers and regional disintegration impeding free trade. Despite all these constraints, after trade liberalization in the 1990s, South Asia has registered trade expansion because of massive tariff reduction [6]. Some progress has been made through agreements like South Asian Association for Regional Cooperation (SAARC), the agreement on the South Asian Free Trade Area (SAFTA), and several bilateral agreements but performing less than expected because of geopolitics rift and legacy of mistrust between nations [7].

The economic and social figures of South Asia are quite unusual and conflicting (see Table 1). Larger portion of agriculture workers (41.70%) relies on too little agricultural value added. Prevalence of this condition is more pronounced in India, Bangladesh, Pakistan and Nepal. Besides this, south Asia is predominantly rural with 65.57% of people living in rural areas and 16.1% of population living below the poverty line of USD$1.90 per day head count ratio (2011 PPP). Agriculture in the region is dominated by small farmers with an average holding size of less than 2 hectares, who are also the net buyers of food [8]. The whole figures of agricultural economies in South Asia showed mixed performance in economic and social aspects, but don't know the concrete relation between them. The paper is an attempt in this direction. The understanding of connection between economic upgrading and social upgrading or the extent of translation of economic upgrading to social upgrading is important in this context. The analysis could provide policy directions to country, indicating that- under what interventions and governance arrangements, overall upgrading is likely to occur [9]. The paper explores the situation of economic and social upgrading taking 15 years (2003-2017) data in the agricultural value chain of South Asia.

The paper is organized as follows. Section 1 provides an introduction to the case study. Section 2 discusses key concepts and linkages of economic and social upgrading. Section 3 discusses their quantitative methodology. Section 4 presents results and discussion on upgrading of five south Asian countries during 2003 to 2017. Section 5 presents conclusion and limitations.

Table 1. Agriculture and South Asian economies

2. Theoretical Background

Economic growth and economic upgrading are increasingly taken as synonymous because export oriented growth models are favored in policies of developing and developed countries [10]. Gereffi [11] defined the economic upgrading at industrial level as "the process by which economic actors—nations, firms, and workers—move from low-value to relatively high value activities in global production networks". Now, the question has been aroused - Have employees involved in global production networks (GPN) also realized the upgrading? The needs of economic opportunities gained by employees or workers, their economic rights, gender equality, working conditions and economic security (i.e., social upgrading) should also be given priority along with the export shares and growth, value addition, and profits of firms [12]. Thus the concept of economic upgrading and social upgrading developed to improve the position of both firms and workers involved in the value chain and global production process [13,14]. Social upgrading is the process of improvements in the rights and entitlements of social actors, especially workers in global production networks by enhancing the quality of their employment [15]. In many cases, economic upgrading is considered a necessary condition, but not sufficient condition for social upgrading [1]. This is mainly because of the common assumption that higher pay and labor standards raise costs and reduce competitiveness. However, recent literature is focused to analyze the economic upgrading keeping close relation with social boundaries of living standards, including wages, work conditions, economic rights, gender equality and economic security [10,12,16]. Milberg and Winkler [10] pointed out the theoretical tensions between neoclassical and institutional approaches while linking social and economic upgrading. Neoclassical economists believe that both social and economic upgrading is endogenous to economic growth. GPN approaches raised the possibility that not all growth raises social standards because of lacking stronger spillover effects and profit oriented interest of lead firms. Selwyn [14] looks at the connection of two upgraders from the viewpoint of capital-labor relationship or Marxist point of view. Capitalist exploitation is the root cause of indecent work and resistance of it. In order words, economic upgrading is achieved by firms at expense of social downgrading [17].

The economic upgrading has two dimensions- capital and labor, while social upgrading has also two components- measurable standards and enabling rights (see Figure 1). The labor dimension is correlated with measurable standards through better wages and working conditions. Increasing exportability of firms could also enhance social upgrading providing fair wages and physical well being. Among the various forms of economic upgrading{1}- product, process, functional & chain upgrading, the function, chain and process upgrading translates into social upgrading in terms of labor welfare [12]. However, the role of product upgrading and social upgrading is not clear cut. In addition, sometimes it could be possible that firms combine economic upgrading with social upgrading to enhance cost competitiveness, despite commercial sustainability being jeopardized [13]. The lacking point is the part of enabling rights on social upgrading is often undermined. Barrientos, Gereffi, and Rossi [13] pointed out three types of social upgrading- small scale worker upgrading, labor intensive upgrading and higher skill upgrading, depending upon time taken to upgrade into higher measurable standards. Small scale worker upgrading is faster and easier for decent work attainment followed by labor intensive upgrading and higher skill upgrading, respectively.

There are different methods of measuring economic upgrading and social upgrading in the global value chain. Upgrading of value chain emphasizes two key elements: development of technological capability and market access [18]. The method used by Amighini [19] has included the three factors- competitive factor, external market factor and export unit value to determine the economic upgrading of the global value chain. A competitive factor means the ability to increase the market share of products, while external market factors mean the evolution of world demand for imports of products. Milberg and Winkler [10] adopted the upgrading ratio as the ratio of growth in value added to the growth in exports to measure economic upgrading. Economic upgrading and social upgrading could also be understood and defined at different levels- nation wise, sector or global production network and firm or plant [10]. Sector wise, economic upgrading includes indicators like productivity growth; value added growth, profits growth, export growth, and increased intensity of capital and skills. Likewise, at sector level, social upgrading includes the indicators like wage growth, employment growth and improved labor standards and well being. Salido and Bellhouse [20] pointed out the three major methodological challenges of measuring these upgradings: the level of analysis and comparability of current studies, quantification restrictions and the conceptualization of social upgrading. First, the level of analysis at firm, sector or nation may not allow for standardized applicability and findings are context specific. Second is constraint of availability of quality data so that data are to be gathered using different accounting methods and country specific. Third, social upgrading undertakes multiple concepts at both qualitative and quantitative level.

Figure 1. Linkage of economic and social upgrading (Source: Barrientos, Gereffi, & Rossi [13,22])

3. Methodology

The parsimonious approach (or, symmetric composite index), developed by Bernhardt and Milberg [1], was adopted to measure economic and social upgrading over 2003-2017 in the agriculture sector which was based entirely on data published by international institutions. To operationalize the concept of economic and social upgrading, the approach had given the equal weight to each of theirs necessary conditions, as shown in below:

Economic upgrading = 0.5 * (% change in world export share) + 0.5 * (% change in export value unit)

Social upgrading = 0.5 * (% change in employment) + 0.5 * (% change in wage rate)

To check the robustness of results given by these methods, the asymmetric composite index and narrow concept given by Kaplinsky and Readman [2] were used. These two methods are more restrictive to upgrading. The asymmetric method rewards those countries that perform well in both indicators due to its multiplicative form as shown below:

Economic upgrading = (1+ % change in world export share)*(1 + % change in export value unit) - 1

Social upgrading = (1 + % change in employment)*(1 + % change in wage rate) – 1

The concept adopted by Kaplinsky and Readman [2] is very strict and restrictive. This is because the country experiences economic upgrading or social upgrading in the sector if both indicators have positive signs.

A prototype of 2*2 matrix was used as an analytical tool to show the economic and social upgrading within the agriculture value chain of South Asia. If a country’s sector’s performance falls in the northeast quadrant, then there is unambiguous upgrading. The southwest quadrant is the case of unambiguous downgrading. The northwest and southeast quadrants are ambiguous cases, where one dimension shows positive growth and the other dimension falls.

4. Results and Discussion

The analysis of data from 2003 to 2017 (15 years), as shown in Table 1 and Figure 1 showed that Bangladesh, India, Pakistan and Sri Lanka were categorized into economic upgraders, while Nepal remained as intermediate in the agricultural sector. During the 15 year time period, Bangladesh, India, Pakistan and Sri Lanka shared the increasing rate of 4.52%, 4.68%, 1.87%, and 0.84%, respectively, of world export value annually while, Nepal shared diminishing rate (0.68%) of world export value on annual basis. In addition, the export value index grew with positive values for all five countries. Bangladesh exhibited the highest growth rate of export unit value per year (9.02%), followed by Sri Lanka (8.37%), India (9.97%), Pakistan (9.93%) and Nepal (4.50%), respectively.

With regard to social upgrading, results showed (Table 2 and Figure 2) that Nepal and Pakistan fall under social upgraders, while Bangladesh, India and Sri Lanka were intermediate cases. Bangladesh, India and Sri Lanka had shown the trend of decreasing employment growth by 0.44%, 0.88% and 1.85%, respectively. In contrast, Nepal and Pakistan had shown the increasing trend of employment growth in the agriculture sector by 0.83% and 2.49%, respectively. In addition, the wage rate was seen as increasing in all four countries- Pakistan as first (9.32%) followed by India (6.6%), Bangladesh (6.06%), Nepal (5.32%) and Sri Lanka (4.14%).

Figure 2. Prototype matrix of economic and social upgrading or downgrading

Table 2. Economic upgrading and downgrading in the agriculture sector, 2003-2017 (Annualized percentage growth)

Figure 3. Economic upgrading of agriculture sector in South Asian countries (2003-2017)

Table 3. Social upgrading and downgrading in the agriculture sector, 2003-2017 (Annualized percentage growth)

Figure 4. Social upgrading of agriculture sector in South Asian countries (2003-2017)

Figure 5. Economic and social upgrading, 2003-2017

Table 4. Robustness test using three different methods

Integrating both social upgrading and economic upgrading, it can be inferred that economic upgrading was not sufficient condition for social upgrading (compare Figure 3 and Figure 4) in South Asia. Similar result was found by the study of Bernhardt and Milberg [1] conducted in the global tourism sector. Nepal was intermediate in terms of economic upgrading but upgrader in social value. This is probably because Nepal faced decade long civil war (1996-2006) and subsequent transitional period halted the socio-economic development of Nepal [25]. After politico-economic structural change in 2007, the issues of social development i.e., social capital, inequality, women empowerment etc. came into the light [26], which could be cause for Nepal to be categorized into social upgrader. Bangladesh, Sri Lanka and India were classified into economic upgraders while intermediate in social upgrading. In addition, Pakistan seemed upgraders in both social and economic value. The study of Ali, Mustafa, and Shahbazi [27] found that income inequality had a negative impact on human capital in the agriculture sector of Pakistan, which supported the finding of this study that economic and social upgrading of Pakistan are integrated. The analysis of Moktan [28] showed that trade agreements like SAPTA have a positive impact on the volume of intra regional exports of SAARC countries. In the agriculture sector, South Asia has increased the value of agricultural trade because of reduction in trade costs and improvement in logistic performance indicators [28]. Weerahewa [29] also noted that significant trade gains in South Asia countries are because of reducing inefficiencies at borders.

4.1. Robustness Test

The method used in this analysis (i.e., symmetric composite index) shows the pro-upgrading bias [1]. For this, two alternative and stricter models were used to check the robustness. The asymmetric method has not shown discrepancies with the symmetric method. The method of Kaplinsky and Readman [2] showed the different results for all countries except for Pakistan. This means the overall upgrading of Pakistan was robust to method 1 and method 2.

5. Conclusion

Various researches have concluded that economic upgrading is necessary or conducive to social upgrading, but not sufficient conditions. At the same time, economic upgrading is more likely to occur with social upgrading than without and vice versa [30]. A parsimonious method of analysis categorized Bangladesh, India and Sri Lanka into the box of economic upgraders, however these countries fell into the category of intermediate case in terms of social upgrading. The case of these three countries showed that economic upgrading does not automatically lead to social upgrading in agriculture sector. From the view point of policy, Bangladesh, Sri-Lanka and India should pursue policy actions to upgrade social factors especially in the parts of increasing wage level of labors and their enabling rights. Nepal was economically an intermediate case while an upgrader in social aspects. So, Nepal should mainly be concerned with agricultural production and exports. Pakistan was categorized into both economic and social upgraders, thus should equally prioritize both parts to maintain the balance in agriculture sector.

The analysis of paper suffers from quantitative restrictions- choosing the data of more representatives from available datasets. Better understanding of the connection of social and economic upgrading will help to make the public policy for increased need of inclusive growth especially in developing regions like South Asia. Further researches and sophisticated methodology are imperatives to capture the linkage of social and economic upgrading in South Asia to provide the concrete basis of interventions needed at policy level of agriculture sectors.

Note

1. Product upgrading- producing higher quality product lines; Process upgrading- deployments of improved technologies or machineries and re-organizing production system to produce more efficiently; Functional upgrading- mixing, adding or changing functions of value chain towards higher value added tasks via means like vertical integration, specialization etc.; Chain upgrading- upgrade into new chain of higher value added [2,11,21].

References

Appendix

1. Export value (US$1000)

Table

2. World export share (%)

Table

3. Export value index

Table

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