Mellor divides agriculture to fall in one of the three phases. The phases are: 1. Traditional Agriculture 2. Technologically Dynamic Agriculture-Low Capital Technology 3. Technologically Dynamic Agriculture-High Capital Technology.
Phase # 1. Traditional Agriculture:
Mellor’s definition of traditional agriculture is much different from given by Schultz. He does not define agriculture in the sense of equilibrium. For him, traditional agriculture is a backward labour intensive agriculture which uses only crude form of capital. It is not simply a stagnant agriculture as is implied by Schultz’s definition.
According to Mellor, farm organisations in traditional agriculture, though different in different countries because of difference in physical, economic and social factors, have some common features also. For instance, most of the farms are cultivated by the farmers with their family labour. Even the capital is provided by the farmer from his own source.
The farms are generally small in size and the word force per farm is higher on these farm. When compared with that in high income countries. These features, result in low productivity and low income in these farms. So far as resource allocation on these farms is concerned Mellor follows Schultz.
According, to him resources are optimally allocated on these farms.
According to Mellor, land and labour constitute the major inputs on these farms. The capital is in a very crude form. It is direct embodiment of human labour and therefore, its productivity is quite low.
Law of diminishing returns to labour:
The main input, applies in such an agriculture. As land is limited and so is the capital, additional labour force is the only source of increasing income in such an agriculture. However due to the application of law of diminishing returns to labour, per capita productivity and income falls as more and more labour is used to produce more output.
Mellor does admit that in traditional agriculture, some non-traditional inputs like fertilizers have been used. But he points out that their use has not added significantly to the output mainly because other complementary inputs are not used along with the fertilizers.
Mellor is of the view that there is much under employment in traditional agriculture. But this need not be due to the existence of zero value labour. This is mainly because of uneven distribution of land in the society with traditional agriculture.
Mellor feels that while on the small farms, under employment (or disguised unemployment) may exist due to the existence of zero value labour, on larger farms, underemployment exists due to another reason. According to Mellor, the pattern of consumption in a traditional agricultural is rather rigid of a rigid.
As, on larger farms, income is likely to be more than what is needed to meet the requirements of a rigid consumption pattern, the amount produced on such farms i.e. the amount of labour to be used is not to be disguised.
For proving this point Mellor uses the following analytical tools:
1. The Production Possibility Curve:
For Mellor, this curve shows the relationship between total output on a given farm and the amount of labour used to produce that output in other words it is total productivity curve in value terms with labour as the independent variable.
The total output in the curve, however, is not shown purely in terms of the value of actual physical agricultural output. It is rather in terms of the value of combination of agriculture output and the non-agricultural goods and services that are exchanged for agricultural goods at each level of labour use. As the law of diminishing returns starts applying to agricultural product from the very beginning this curve progressively becomes flat as the amount of labour use increases along x-axis.
Ultimately, the curve becomes parallel to X axis at a point, where the marginal productivity of labour becomes equal to zero. This curvature of the production possibility curve is valid for farms of all sizes. The only difference will be that the production possibility curve will be higher for larger farm than for the smaller farms though it will start from the origin in each case.
In diagram 1 curves A to G are production possibility curves. All of then start from the origin C in the direction of CO. Axis CO shows man-time at C, it is presumed that zero work is put in while leisure availed of is OC. At O, all man-time has been used and there is no leisure left.
The other tool that Mellor uses to show that labour is underemployed on larger farms is the iso-utility curve. It is just like an indifference curve (with O as the origin) a curve that shows at each point, the same amount of satisfaction from two commodities, one the goods and services and other the leisure (opposite to work as measured from. If a farmer wants more of goods and services, he will have to have so less of leisure, i.e., put in so much more work that he gets the same amount of satisfaction.
A curve showing all such combinations of goods and services; on the one hand and leisure on the other which give him the same satisfaction is called Iso-utility curve. The rigid consumption pattern of the farmers affects the shape of the iso-utility curve as drawn with O as the origin.
As each dose of additional goods and services have little utility due to rigid consumption pattern, it will progressively exchange for a smaller amount of leisure. In other words, each unit of leisure added (or work put it) will be progressively exchanged with larger dose of goods and services.
The iso-utility curve, will thus be convex to O (from which leisure is measured in the direction of Oc, the marginal rate of substitution between the two commodities falling as is shown in diagram, (it may be noted that we can also say that the iso-utility curve has been drawn with C as the origin in diagram I. In that case of course we shall consider work put in and not the leisure as the other commodity on better say, the discommodity in the combination).
2. Iso Utility Map:
Just as there is a set of indifference curves, there is also a set of iso utility curves, each higher curve indicating a higher level of satisfaction as compared with the one below it. If all such curves are drawn we get what is, called an iso-utility map. Curves T to Z in diagram I show a part of the Iso-utility map. This map is considered to the same for each farmer.
(i) Three Types Income levels:
Before we follow Mellor to find out the point of equilibrium of labour use on large farms we may refer to the three types of incomes levels as distinguished by Mellor. These are (a) level which ensures only the minimum food, clothing shelter and other essentials for maintaining human life. OYo in the diagram shows this level, (b) the culturally defined subsistence level. OY indicates this level in the diagram.
According to Mellor, in a traditional agriculture. OY should indicate the maximum level of income which a farmer can aspire for. Income level beyond OY is deemed to be a non-traditional agriculture. It is a level which indicates changing standard of living found in dynamic, non-traditional agricultural societies.
(ii) Equilibrium Level of Labour use:
According to Mellor equilibrium level of labour use on such small farms as ensure income level only upto OYo will be indicated by the point where marginal productivity of labour becomes equal to zero. This is because all efforts should be made by the farmers to get the maximum output from land.
Between OYo and OY, the equilibrium level of labour use will be determined at the point where the satisfaction from output produced is the maximum. This will be obviously a point where the given production possibility of a farm is just tangent to one of the iso-utility curves.
The shape of the iso-utility curves and the production possibility curves are such that according to Mellor, the equilibrium point will always be to the right of the point where the marginal productivity of labour is equal to zero. In other words, on such farms, there will be underemployment of labour even when the marginal productivity of labour is positive and is more than zero.
The above diagram as given by Mellor, clearly shows that as the production possibility curve moves upwards its tangency point with an iso- utility curve move towards the rights at least up to the level of income defined as culturally determined subsistence level the income level relevant for traditional agriculture.
In the diagram production possibility curves A&B pertain to a subsistence or below subsistence farm. It is only here that labour will be used up to a point where its marginal productivity is equal to zero. From the above analysis. Mellor further concludes that income in traditional agriculture can be increased if more labour is used on the farms. This suggests redistribution of land and taxation on agricultural incomes as the methods to promote the use of more labour on the larger farms.
Backward sloping supply curve in traditional agriculture:
Mellor is of the view that supply curve for agriculture production in traditional agriculture is backward sloping. His argument is as follows: when prices of agricultural products are raised, two things happen. On the one hand, there is a temptation to produce more, i.e. one likes to substitute labour for leisure.
This is what he calls positive substitution effect of rise in prices of agriculture production on the one hand, the pattern of consumption in a traditional society is tradition bound is rigid. Now when the prices rise, income of the farmers rises. But the consumption pattern is rigid.
So there is a temptation to produce less by using less labour in production. This is negative income effect of rise in prices of agricultural products. According to Mellor, in a traditional agriculture, negative income effect is stronger then the positive substitution effect, so far as the labour use & therefore output is concerned. The supply therefore falls when prices of agriculture products increase.
In the same Vein Mellor feels that whether zero value labour exists in traditional agriculture or not, withdraw of labour from the agricultural sector will result in the fall in agriculture output.
This is because withdrawal of labour will give a higher per capital income to the people who are still left in the agricultural sector. As their income rises, the phenomenon of backward sloping supply curve-relevant for the traditional agriculture will apply and the total agricultural output will fall.
Mellor is of the view that so long as agriculture is traditional in character it cannot help the non-farm sector through flow of funds. Capital formation in traditional agriculture is very low. It must be taken out of its traditional if it is to help in the development of then on-farm sector. And it cannot move out of the traditional rut by itself. For this the Government has to devise a policy aimed at the “complex but potential productivity process of technological change”.
Phase # 2. Technologically Dynamic Agriculture-Low Capital Technology:
According to Mellor, only when agriculture moves into this phase from the traditional phase that it can provide resources to the non- farm sector to grow. This phase involves the use of new inputs with high marginal productivity.
The new inputs do not involve the use of too much of capital, and are complementary rather than competitive with labour. The traditional inputs are also used in this phase. These inputs increase the productivity per acre. Fertilizers, new seeds, power are some of these inputs.
This phase according to Mellor have the following important features:
(a) Agriculture still occupies the most important position in the economy in terms of income generation
(b) Demand for agricultural products continues to grow due to increasing population
(c) Size of the farms continues to be small due to slow growth of the non-farm sector and
(d) agriculture does not use machinery due to availability of cheap labour.
Mellor feels that the following steps are necessary if the traditional agriculture has to move into the 2nd phase of development and also if the second phase is to be all embracive.
(i) Institutional changes for creating necessary incentives for development. Mellor is firmly of the view that institutional changes like land and reforms are necessary for giving incentives to the cultivators to produce more. Technological changes will follow only the institutional reforms.
(ii) Encouragement of research. Mellor emphasises scientific research at regional level. Sometimes, the research findings prove ineffective because these are not based upon regional variations.
(iii) Supply of new and improved physical inputs. This is one of the most important measures that Mellor suggests for pushing a traditional agriculture into the 2nd phase of development. These inputs include new crop varieties, improved breeds of livestock, inorganic fertilizers, insecticides etc., Organizations for their proper distribution need to be set up, Mellor feels, that some of these inputs may have to be imported from outside as their production in the country itself may be rather costly. Infrastructure necessary for the development and production of these inputs is to be developed. Efforts have to be made to made them acceptable to the farmers.
(iv) Setting up of institutions to services agricultural production. There are many supporting services which have to be developed if the agricultural production proper is to increase. The institution includes those distributing modern inputs, those facilitating marketing of agricultural products those engaged in processing agriculture crops.
(v) Development of communication system to help farmers make choices. Extension services have to be developed to enable farmer make choices out of various alternative inputs and practices which go on appearing, in a dynamic agriculture. With regard to all these steps Mellor points out that, no doubt, in the beginning large return technical innovations may be adopted even when some of these steps are not taken.
However, if the 2nd phase of agricultural development is to be widespread, all those services are to be provided in a package. He further points out that all these steps have to be taken by the Government itself. Private individuals are not in position to provide this package to the farmers. In this regards, he further points on that regional diagnostic studies be conducted to ensure suitability of the package.
Mellor also emphasises the development of a broad range of educational institutions in order to ensure that the capacity of the farmer to grasp the new technicalities is increased. Two important points may be noted in Mellor’s steps for pushing a traditional agriculture into the 2nd phase. The first is in consumption to a suggestion made by Schultz. It is that Mellor is not against command approach.
He expects much from the Government to push traditional agriculture into a non-traditional phase. Secondly, in this phase, the inputs are not highly capital using. The inputs suggested to be used are low capital intensive and are complementary to labour. There is no displacement of labour.
Phase # 3. Technological Dynamic Agriculture-High Capital Technology:
Mellor has not discussed this phase in detail as he was mainly interested, like Schultz in transformation of a backward agriculture. However, he point out that when agriculture gets going in the 2nd phase, it will provide funds for the non-farm sector to develop.
After sometime both the sector start developing with mutual help and agriculture will automatically enter the Third phase of development. Here heavy machinery will be used in agriculture, labour will be available for absorption in developing non-farm sector. The heavy machinery will be developed in the expanding non-farm sector.
Size of the farm will increase due to the transfer of tax from the farm sector to the non-farm sector High level of investment in machinery in agriculture becomes possible because of two factors:
(1) Capital formation in the developed agricultural sector grows further and
(2) The developed non-farm sector begins to use its own savings for investment and therefore docs not need any capital from the agricultural sector.
One point may be noted with regard to all these three phases of development. Mellor is of the view that the three phases should be followed in the sequence, he has given. This will ensure optimum use of resources from the long term point of view.
Historically too this pattern of development is more correct. Only the United States entered the third phase first and the 2nd phase later. This is because United States, agricultural machinery was developed earlier than the fertilisers were developed. However, as the present situations when both machinery and fertilisers are available the world order, it is desirable that the traditional agriculture of a country enter the 2nd phase and third phases of development in the order.