World Food Policy Volume 2, Number 1, Spring 2015 | Page 21

World Food Policy

Selection and packing of fresh
fruit, for example, if done off-farm, is
counted in manufacturing and the workers
deemed nonfarm employees, although in
common parlance—and in the minds of
economists unfamiliar with the details
of national accounting—such an activity
would be thought as part of the agricultural
sector. Similarly, with development and
an increasingly sophisticated food sector,
wine production, pasteurized and ultrahigh-temperature (UHT) milk, cheese,
eggs, and poultry processing, and other
such activities, are taken out of the primary
agriculture column in national accounts
and classified as manufactures. And many
activities producing intermediate inputs
for farming—fertili zers, energy and
traction, pesticides, and some machinery
and labor services—which were formerly
on-farm activities, are now provided
by nonagricultural sectors. The more
intensive is economic specialization in an
economy, the smaller agriculture appears
to be, certainly relative to the rest of the
economy, simply as a matter of accounting
definitions.

This purely accounting-based
perception of agriculture has reinforced
the assessment found in a significant part
of the economic development literature,
especially related to Latin America, that
the agricultural sector generates few
positive externalities. The structuralist
school (famously represented by
Prebisch 1950; Singer 1957; Myrdal
1957), for example, contended that the
farm sector contributed little to the
rest of the economy via backward and
forward linkages (purchases and sales).
Without a significant contribution to the
rest of the production system, various
development experts concluded that the

stimulation of the agricultural economy
should be a low priority in the pursuit of
economic development. Time has eroded
confidence in this view, in large part due
to the disappointing performance of the
associated import-substitution strategy
that accompanied it and due to the better
understanding of the connection between
improving farm productivity and poverty
reduction in both rural and urban areas
(see, for example, the extensive treatment
in the World Bank’s World Development
Report 2008: Agriculture for Development).

More recently, research on the
links between the sector with the rest
of the economy have produced a body
of evidence that agricultural growth
would have significant multiplier
effects, spreading through other sectors,
beyond their direct contribution to
GDP. In particular, research has shown
quantitatively that acceleration in the
growth of agricultural production in
much of Latin America had a significantly
positive effect on employment and wages
of unskilled workers and through this
process helped reduce rural poverty
(see, for example, de Ferranti, et al. 2005;
Bravo-Ortega and Lederman 2005; World
Bank 2007).

The purpose of this study is to
present and apply a methodology to
measure an “expanded agricultural VA,”
i.e., a measure that incorporates the
net impact of the primary sector on the
VA of other sectors via backward and
forward linkages. The following section
discusses the importance of the strength
of forward and backward linkages of
primary agriculture to the rest of the
economy, illustrating the linkages with
evidence from the most recently available
Chilean intermediate use matrix on which
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