Korean Experience with Structural Adjustment in Korea Agriculture and WTO System: Issues and Prospects

1999. 5.

Jung-Hwan Lee

Korea Rural Economic Institute

Contents

Ⅰ. Introduction

Ⅱ. Agriculture in Korea Economy

1. Transformation in Industrial Structure

2. Relative Productivity in Nominal and Constant Prices

Ⅲ. Transformation of Agricultural Production

1. Growth of Agricultural Production

2. Factor Input and Factor Productivity

3. Transformation of Farm Land Use Structure

Ⅳ. Transformation of Agricultural Employment

1. Decrease in Agricultural Employment

2. Paths of Transformation of Employment Structure

3. Transformation in Age Structure of Agricultural Labor Force

Ⅴ. Transformation of Farm Land Transfer

1. Spurting Urban Land Market and Farm Land Prices

2. Development of Farm Land Tenure System

3. Transformation of Farm Size Distribution

Ⅵ. Current Situation and Prospects for Korean Agricultural Structure

1. Structural Adjustment Policies under WTO System

2. Situation and Outlook

Ⅶ. Concluding Remarks and Implications

I. Introduction

The agricultural adjustment problem comprises of three dimensions. The first one is how fast agricultural production can be switched to highly income-elastic and exportable products. In low income countries, agricultural growth is constrained mainly by supply-side factors and promoting agricultural production has been  the principal  issue in their development strategies. Constraint prevent agricultural growth switching over to demand-side factors as economic growth proceeds and thus agricultural production has received less attention in studies of agricultural adjustment. However, with a given non-agricultural growth rate, if a higher growth rate can be achieved in the agricultural sector,  less would be the adjustment needed in the agricultural structure. If the production switch is successful enough to keep agricultural growth rate as high as that of the non-agricultural sector, agricultural adjustment problems might be reduced to a minimum.

The second is how fast labor force can be reallocated between sectors to comply with the growth difference between sectors. This dimension has been taken to be the core element of agricultural  adjustment since the 1950s when Schultz defined it as the farm problem in a growing economy. But is the labor market effective and dependable as generally held to be? We decompose the reallocation of labor into three elements-job change, natural causes including death and retirement, and new entrants. How do these factors work in the reallocation in a  process of economic development?

The third dimension is how fast ownership or operational management of farm land can be transferred to larger sized farms to match the decrease of agricultural labor force. Farm land transfer is concerned with both quantity and direction. If the quantity is small, with a given labor reallocation, mechanization cannot substitute for the decrease in labor force, at least without a decline in the efficiency of utilization of machinery. Given the quantity, the more land is transferred to the upper spectrum of farm size distribution, the more large farms can be created. If, on the other hand, land is allocated to small size farms to make them a little larger, fewer farms become large enough to be mechanized and viable full-time farms.

These three dimensions of agricultural adjustment will be investigated for Korean agriculture comparing with experience of other developed countries. Korea's average per capita production was US $105 in 1960, but had risen to US $9046 by 1997. As a result of this spurt in economic growth, Korea came to be identified with the group of Newly Industrializing Countries (NICs) formed with a few other countries by the end of the 1970s.

The spurt of economic growth was accompanied by a drastic change in the sectoral structure. The share of the agricultural sector in  employment decreased from more than 65 percent in the early 1960s to 12 percent by 1998. At the same time, the agriculture's share in production declined to 4.6 percent by 1998 from 45 percent in the beginning of the 1960s. In the course of this spurt economic development, the agricultural sector has been adjusted and transformed to keep up with the pace of economic growth and the changes in the international market for agricultural commodities.

This Korean experience deserves to be viewed from an international perspective because of its many implications for policy and the lessons to be learned from it.

II. Agriculture in the Korean Economy

1. Transformation of the Industrial Structure

Since Clark and Kuznets, it has been a general notion that agricultural's share, in both production and employment, decreases with economic development. Figure 1 shows how industrial structure has been  transformed in Korea. We categorize the national economy into three sectors following the tradition; agriculture, forest and fisheries; manufacture and mining; and services. Construction and utilities are included in services since they are not tradable. Two structural transformation points can be identified in production and employment, respectively: Transformation point A where agricultural's share begins to be less than that of the service sector; transformation point B where agricultural's share begins to be less than that of the manufacturing and mining sector. We  call  transformation points A and B in production, AP and BP, and in employment, AE and BE.

Transformation points AP and AE appeared in 1965 and 1978 when agricultural shares were 40.3 percent and 38.4 percent, respectively, while transformation points BP and BE appeared in 1973 and 1985 when the shares were 25.5 percent and 24.6 percent, respectively. For comparison,  Table 1 presents transformation points of industrial structure in seven developed countries and Korea. According to this table, transformation point A, in both production and employment, appeared in the developed countries when agricultural's share was around 40 percent while point B appeared when the share was about 25 percent. It is very impressive that, in spite of differences in natural conditions and policies, structural transformation in Korea coincides well with the experiences of the seven developed countries. Matching the corresponding transformation points in production and employment, i.e., AP with AE and BP with BE, it clearly reveals time-lags between the two transformations, 13years in transformation A and 12 years in transformation B. This time-lag made agricultural's labor productivity to be much lower than that of the  non-agricultural sector.

Table 1. Agricultural's Share at Transformation Points

unit:  %

	In Production		In Emp1oyment
	AP	BP	AE	BE
Britain Netherlands United States Germany Denmark France Japan Korea	39.6 n.a, 44.7 n.a. 41.2 36.0 42.7 40.3	28.0 n.a. 22.4 n.a. 23.2 28.1 21.9 25.5	39.0 39.9 38.1 37.3 38.3 37.0 40.6 38.4	30.8 26.3 28.0 29.2 25.8 31.7 24.7 24.6
Average	40.8	24.9	38.6	27.6

Source : Lee and Timmer (1993)

2.  Relative Productivity in Nominal and Constant Prices

In Korea, the nominal productivity ratio (agricultural productivity/ non-agricultural productivity) has been as low as about 0.4 since 1960  (Table 2). International experiences presented in the table show that the productivity ratios between sectors have been different from country to country and fluctuated from time to time. However, productivity in agriculture in developed countries has been substantially and persistently lower than that of the non-agriculture sector as in Korea though with a few exceptions.

The nominal productivity ratio is heavily affected by terms of trade between sectors. In order to segregate the price effect, productivity ratios in constant prices are presented in Table 3, again for seven developed countries and Korea. This table shows that productivity ratios in constant prices increased after a long period of decrease, and that the increase was extremely steep after 1960 in all developed countries expect in Japan. In Korea, the ratio has increased only mildly since the beginning of the 1980s. However, it is questionable whether this increasing trend will able to be sustained as in developed countries.

Table 2.  Productivity Ratio between Sectors in Nominal Prices

Country	1851	1901	1960	1970	1986
Britain Netherlands Denmark U.S. Germany France Japan Korea	0.93 0.44a 0.57 0.40b 0.46C 0.73d n.a. n.a.	0.73 0.34t 0.44 0.38 0.42 0.69 0.30 n.a.	0.80 0.73 0.66 0.46 0.39 0.45 0.32 0.47f	0.95 0.83 0.55 0.60 0.39 0.50 0.30 0.38	0.68 0.75 0.81 0.65 0.33 0.51 0.32 0.42

1. Productivity denotes value-added products per labor force, and productivity ratio denotes agricultural productivity divided by non-agricultural productivity.

2. a is for 1860, b for 1850, c for 1852, d for 1856, e for 1900, and f for 1964.

3. Source: Lee and Timmer (1993).

Table 3.  Productivity Ratio between Sectors in 1960 Prices

Country	1851	1901	1960	1970	1986
Britain	0.46	0.53	0.80	1.20	1.68
Netherlands	0.36	0.34e	0.73	1.00	1.76
Denmark	0.50	0.33	0.66	0.70	0.37
U.S.	0.40b	0.29	0.46	0.62	0.85
Germany	0.46c	0.53	0.39	0.49	0.71
France	0.32d	0.41	0.45	0.88
Japan	n.a.	0.33	0.32	0.29	0.30
Koreag	n.a.	n.a.	0.40f	0.38	0.40

1. Productivity denotes value-added products per labor force and productivity ratio denotes agricultural productivity Divided by non-agricultural productivity.

2. a is for 1860, b for 1850, c for 1852, d for 1856, e for 1900,  and f for  1964.

3. g stands f or 1970 prices.

Source : Lee and Timmer (1993).

III. Transformation of Agricultural Production

1. Growth of Agricultural Production

Agricultural growth in Korea since 1960 is summarized in Table 4.  A very high growth rate of more than 4 percent per annum was sustained in the 1960s and the 1970s. This high rate of growth during that period can be attributed to the rapid increase of rice and vegetable  production (Table 5), each accounting to 44.9 and 31.4 percent of agricultural growth, respectively. In that sense, rice and vegetables were the engines of agricultural growth in the 1970s.

It should be noted that the agricultural growth rate dropped to 0.78 percent per annum in the 1980s. This drastic drop of the agricultural growth rate is ascribed mainly to the slow down of rice and vegetable production as shown in Table 5. Self-sufficiency in rice was attained at the end of the 1970s, and its per capita consumption began to decrease from 1979.

Table 4. Agricultural Growth Rate and Productivity change

unit: %

Period	Production	Employment	Productivity
1970/72 ～ 1975/77 1975/77 ～ 1986/88 1986/88 ～ 1990/92 1990/92 ～ 1995/97	5.8 1.1 -0.6 2.2	1.7 -3.7 -3.2 -5.5	4.1 4.8 2.6 7.7

1. Including fishery and forest.

Meanwhile, vegetable consumption was approaching the saturation level in the1980s. In other words, rice and vegetables ceased to be the engine for Korea agricultural growth. It is to be noted, however, that the growth rates of all other commodities too, including rice and vegetables,  slowed down in the 1980s.

Table 5.  Sources of Growth and Slow-down in Korean Agriculture

unit: %

	Growth Rate		Contribution Rate
	1970/72 ～1977/79	1977/79 ～1989/91	to growth1	to S1owdown2
Rice Vegetable Fruit Other Crop Livestock Service Tota1	3.56 8,82 9,81 1.10 5.76 2.77 4.20	-0.35 2.33 6.42 -1.94 3.74 5.85 0.78	44.9 31.4 7.6 5.3 9.7 1.1 100	37.7 32.7 5.0 13.3 12.4 -1.1 100

1. For the high growth period of 1970/72～1977/79.

2. It denotes the contribution tate to the slowdown of growth in the period of 1977/79～1989/91. It was calculated as follows:

Uit*  = uit-1 (1+gi)

△Ui =  Uit* - Uit

R   = △Ui/∑△Ui

where Uit stands for the value added of I-th commodity, gi for growth rate in the period of 1970/2～1977/79, R for contribution.

Source: Bank of Korea, National Account.

In conclusion, agriculture failed in diversifying production from traditional crops to new income elastic or exportable commodities. This fact accounts for the crisis of agricultural production in Korea in the 1980s.

Two peculiar features can be identified in Korea's agricultural growth when compared with the developed countries. First, from Table 4 and 6, which show sectoral growth rates since the beginning of industrialization in the developed countries and Korea, we find that the agricultural growth rate of Korea in the 1970s was higher than that achieved by any other developed country in the course of their agricultural development. On the contrary, the agricultural growth rate of Korea in the 1980s was much lower than those achieved by the other countries in the course of their economic development and growth.

Table 6. International Comparison of Sectoral Growth Rate

unit:  %

Country	Period	Agriculture	Non-agriculture	Difference
Britain Netherlands Denmark France Germany Japan	1801～1935 1950～1986 1860～1939 1950～1986 1818～1939 1947～1986 1820～1935 1950～1986 1850～1913 1950～1986 1885～1940 1950～1986	0.88 2.45 1.18 3.47 1.30 1.49 0.87 1.71 1.53 1.54 1.32 1.13	2.08 2.32 2.22 4.03 2.93 3.67 1.53 4.47 2.85 4.24 4.02 7.87	1.20 -0.13 1.04 0.56 1.63 2.18 0.66 2.76 1.32 2.70 2.70 6.74

Source : Lee and Timmer (1993).

This implies that Korean agriculture was transformed quite drastically between the end of the 1970s and the beginning of the 1980s.

Secondly, the difference between sectoral rates was extraordinarily high in Korea. Table 6 shows growth rate difference in other countries were less than 3 percent with only one exception of post-war Japan, but still less than Korea's.

However, in Korea, the difference was 6.7 percent in the 1960s and it  later expanded to 8.5 percent in the 1980s. Implied here too is failure of korean agriculture to have diversified out into higher value-added commodities which brought about the crisis in the country's agriculture in the 1980s.

2.  Factor Input and Factor Productivity

Transformation of agricultural production did not come about without corresponding transformation of factor input. Figure 2 shows capital. inputs have increased rapidly on average of 4 percent per annum. Among the capital inputs, capital stock for land improvement has increased by 3.5 percent per annum and livestock 3.7 percent per annum. It is very impressive that capital stock for machinery has increased at a surprisingly rapid rate of 22.6 percent per annum(Lee et al., 1987, p.21).

Labor input hit its maximum in 1976 and then decreased at an accelerating speed. Between 1976 and 1983, it had decreased at 3.4 percent per annum but between 1984 and 1991, 4 percent. Land input changed very little; increased very mildly until 1968 and was followed by a mild decrease.

Transformation of agricultural production and factor input is reflected on the path of factor productivity growth. Figure 3 shows the path of labor and land productivity growth between 1963 and 1991. We can see that factor productivity index curve had moved along the 45-degree line in the 1960s and the 1970s, which implies that labor and land productivity had increased at similar rates. However, the curve moved up ward in the 1980s diverging out of the 45-degree line. That is to say, labor productivity growth began to proceed at a higher rate than land productivity growth since the end of the 1970s. In other words, factor productivity growth was transformed from neutrality to a bias towards labor productivity by the end of the 1970s.

3.  Transformation of Farm Land Use Structure

Before Korea's industrialization started in the 1960s, farm land was used very intensively with a land utilization rate of more than 140 percent.  The rate had decreased on the average by 0.4 percent points per annum between the mid 1960s and the mid 1970s and then its decrease accelerated up to 1.8 percent since that time. The decrease in, the farm land utilization rate is mostly ascribed to the contraction of barley and wheat cultivation as shown in Table 7. Miscellaneous crop including millet and corn were the second crops whose decline contributed to the decrease of farm land utilization between the mid-1960s and the mid-1970s. Between the mid-1970s and the mid 1980s, however, beans were the second crop joined by red pepper in the late 1980s.

Table 7.  Changes of Cropped Area and Contribution Rate by Crop

unit: 1OOha/year (%)

Period	Decrease		Increase
1965/67 ∫ 1975/77	Barley & Wheat Misc. Crop Sweet Potato Beans Mulberry Total	214 (42.5) 114 (22.7) 59 (11.7) 43 ( 8.5) 17 ( 2.8) 503 (100)	Non-agriculture Non - Crop Increased Crop Red Pepper Sesame Fruit vegetable Tota1	148 (29.4) 14 ( 2.8) 341 (67.8) 79 (15.7) 54 (10.7) 40 ( 8.0) 25 ( 5.0) 503 (100)
1975/77 ∫ 1985/87	Barley & wheat Beans Sweet Potato Mulberry Misc. Crop Tota1	472 (60.3) 118 (15.1) 57 ( 7.3) 33 ( 4.2) 26 ( 3.3) 783 (100)	Non-Agriculture Non - Crop Increased Crop Vegetable Sesame Garlic Fruit Tota1	149 (19.0) 382 (48.8) 254 (32.1) 48 ( 6.1) 44 ( 5.6) 30 ( 3.8) 27 ( 3.4) 783 (100)
1984/86 ∫ 1989/91	Barley & wheat Red Pepper Beans Sweet Potato Sesame Total	210 (41.0) 94 (18.4) 44 ( 8.6) 24 ( 4.7) 16 ( 3.1) 512 (100)	Non-Agriculture Non-Crop Increased Crop Fruit Vegetable Tota1	84 (16.4) 346 (67.6) 82 (16.0) 46 ( 9.0) 26 ( 5.1) 512 (100)

Source: MAF, Statistical Yearbook on Agriculture, Forest and Fisheries.

From the mid-1960s to the mid-1970s, most of the farm land released from these decreasing crops was transferred to various other crops including red pepper, sesame, and fruit, for which domestic demand was increasing.  However, after the mid 1970s, only a part of these re1eased areas was transferred to other crops, From the mid 1970s to the mid-1980s almost half (48.8 percent) went to non-crop and just 32.14 percent to vegetables, sesame, and garlic etc. and since the mid-1980s the bulk(67.6 percent) went to non-crop and only 16.0 percent to vegetables, fruits etc. It is observed that red pepper and sesame had been important increasing crops before the mid 1970s but turned out to be decreasing crops since the mid-1980s.

Table 8. Contribution to Changes in Cropped Area by Source: 1975/77 ～ 1985/87

unit: %

Crop	Actual Change	Crop Price	Wage	Price of Current Goods	Residua1
Barley & Wheat Beans Vegetable Fruit Non-Crop	-10.65 -4.12 3.25 3.59 6.05	-3.41 0.11 1.99 2.22 -1.98	-10.48 -7.45 6.65 5.69 11.35	5.80 3.83 -5.31 -4.67 -2.85	-2.25 -0.61 -0.08 0.38 -0.47

Source : Lee and Cho (1990).

What factors have contributed to the transformation of farm land use structure? According to Table 8, farm wage was a key factor for both the drastic decrease of barley and wheat areas and the increase of vegetable and fruit areas and non-crop areas. In other words, an increase of farm wage prompted by industrialization was the major source of changes in farm land use structure.

IV.  Transformation of Agricultural Employment

1.  Decrease in Agricultural Employment

As shown in a previous section, Korea passed the transformation points AE in 1978 and BE in 1985, and the agricultural employment ratio was 16 percent in 1991. Table 9 shows that Britain reached the 16- percent point in 1868,  followed by the U.S.A in 1942, the Netherlands in 1950, and Germany in 1957. Denmark and France reached that level in the 1960s, and Japan in 1971. These finding confirm the classical proposition in development economics that the agricultural  employment ratio decreases with economic development. However, it does not mean that the Korean experience is identical to that of developed countries.

Table 9 indicates how long it took for the agriculture's share in employment to decrease from 40 percent to 16 percent in the developed countries. Forty percent is above the transformation point AE, and 16 percent is above the current level of Korea.

Table 9. The Year When the Agricultural's Employment Share Reached 40 and 16 Percent

Country	40%	16%	Time Length (year)
Britain Netherlands Germany U.S.A Denmark France Japan	before 1800 1855 1897 1900 1920 1921 around 1940	1868 1950 1957 1942 1962 1965 1971	more than 70 95 60 42 42 44 about 31
Korea	1977	1991	14

Source : Lee and Timmer (1993).

This table clearly shows that it took 40～95 years in most developed countries whereas it took only 14 years in Korea. In other words, employment structure changed 3～8 times faster in Korea than in the developed countries. Why did the employment structure change so fast in Korea?

Table 10 shows the time length for agricultural's share in production to have decreased to a level of 7 percent from 40 percent. Forty percent is the level of transformation point AP, and 7 percent is the current level in Korea. In Britain, the time length was 113 years, in the Netherlands, 165 years and about 100 years in other countries.

Table 10. The Year When the Agricultural Share of Production Reached 40 and 7 Percent

Country	40%	7%	Time Length (year)
Britain Netherlands Germany U.S. Denmark France Japan	1788 around 1800 1854 1866 1850 1878 1896	1901 1965 1950 1958 1969 1972 1969	113 165 96 92 119 94 73
Korea	1965	1991	26

Source : Lee and Timmer (1993).

However, the time length was only 26 years in Korea. In other words, the production structure in Korea changed 3～7 times faster than in the developed countries. Equilibrium in productivity and income between sectors can be attained only if employment structure gets adjusted as fast as production structure changes. In Korea, since the production structure changed very fast, the employment structure was also got adjusted very rapidly.

We now turn to investigate the factors that caused the agricultural's share of production to decrease so fast.  Following the Chenery's method,  a decrease in agricultural's share of production in constant terms can be  decomposed into the following four real factors; final demand, intermediate demand, exports, and imports. If all these four factors increase in agriculture at the same rate as the economic growth, agricultural's share of production will not change. Therefore, final demand is the factor that could account for a decrease in agriculture's share because the final demand for agricultural products increases at a slower rate than that of economic growth. If we add to these four, the price factor which can account a decrease in agriculture's share caused by changes in relative prices, the above noted decrease in agriculture's share in nominal terms will then get decomposed into five factors.

Table 11 reveals that the decrease in agriculture's share of  production was mostly caused by demand factors in Korea. The impact of the other factors including exports and price was minor, and the import factor worked as a negative factor. In other words, agricultural imports increased at a rate less than that economic growth.

Table 11. Factors Contributing to the Decrease of Agriculture's Share of Production in Korea

unit:  %

Period	Final Demand	Interm Demand	Exports	Imports	price	Residual	Total
1970～75 1975～80 1980～85	97.8 83.1 81.7	44.6 8.8 14.6	-4.9 6.7 4.2	41.7 -1.3 -45.6	-72.2 5.1 48.0	-7.0 -2.4 -2.9	100 100 100

Source : Lee et al., (1990), p.14.

This result reconfirms the classical assertion that agriculture's share of production decreases with economic development mostly because income elasticity for agricultural products is substantially less than unity.

2.  Paths of Transformation of Employment Structure

There are three paths in reallocating labor force between sectors: job change, death and retirement of current labor force, and allocation of new entrants.  We first look at the path of job change.

Available data are very limited to look into job mobility between sectors. Fortunately, three sample surveys have been conducted in Korea, and Table 12 gives the survey results for Korea along with some international data. It is observed that the net rate of job change from agriculture to non-agriculture was around 1 percent in Korea. However, we find that the situation was similar in the other developed countries. The rate was around one percent in France, Britain and Denmark, while it was much lower in Germany and even negative in Japan. The rate was at its highest in the Netherlands but still only 1.95 percent.

The low net rate of job change is partly due to the job change from agriculture to non-agriculture was critically low for older segment of the  agricultural labor force.  As shown in Table 13, the rate of job change was as high as 3～4 percent for the segment of the labor force younger than 35 years of age but dropped to less than 1 or 2 percent for the segment or the labor force of older than 35 years of age.

Table 12.  Rate of Job Change from Agriculture to Non-Agriculture

unit: %

Country	Move-0ut	Move-In	Net-Out
Germany+ France+ Netherlands+ Britain+ Denmark+ Japan* Korea**	4.21 3.48 2.23 4.29 5.70 0.64 2.10	3.86 2.38 0.26 3.25 4.35 0.78 0.89	0.35 1.10 1.97 1.04 1.35 -0.14 1.21

1. +  denotes the average of 1972/1973, 1974/1975, 1976/1977.

*  denotes the average of 1959, 1962, 65, 68, 1971, 74, 77, 1979, 1982, 1987.

** denotes the average of 1982/1983, 1985/1986, 1988/1989.

Source : Lee and Timmer (1993).

However, it should be noted that the low rate is also partly attributed to the move-in from non-agriculture offsetting the move-out.  The rate of the move-out was more than 2 percent, but it was offset by the move-in to make the net rate of job change more or less than 1 percent. The situation was similar in the developed countries.  Why do they return to agriculture?

It can be partly attributed to the characteristics of the non-agricultural labor market. The non-agricultural labor market can be distinguished as primary and secondary ones.  Increase in workers schooling and experience leads to higher rank and pay in the primary markets but not in the secondary one.

Table  13. Rate of Job Change of Agricultural Labor Force by Age

unit: %

Age	Japan			Korea
	1962	1974	1987	1982	1986	1988
15 ～ 19 20 ～ 24 25 ～ 29 30 ～ 34 35 ～ 39 40 ～ 54 55 ～	5.26 3.50 1.87 1.18 0.98 0.65 0.19	3.87 3.06 1.14 0.90 0.65 0.61 0.17	3.96 1.63 0.43 0.20	4.55 3.25 4.27 3.24 1.60 0.68	3.12 4.78 6.28 3.57 1.01 0.57	6.77 5.71 4.34 3.42 1.73 0.61

Source: Korea-EPB, Report on Employment Structure Survey.

Japan-Prime Minister's Office, Labor Mobility Survey.

These features made the primary labor market closed to external market, but secondary one, open. As a result, in the primary market, the rewards in terms of earning, working conditions, job security, and career prospects are high, while those of secondary market are low. Most of the migrants from agriculture can have access only to the secondary market and thus likely return to agriculture when disappointed or laid off.

The result of a Japanese survey (Survey on labor Mobility published by the office of the Prime Minister) shows that the average income of migrants from agriculture is as 1ow as 69 percent of the average income of the non-agricultural sector. And 27～33 percent of total migrants from agriculture were employed in temporary jobs. In addition, many of them may return to agriculture in order to protect their ownership of farm land. This issue will be discussed in the next section.

Table 14. Sources of Decrease in Agricultural Labor Force

unit: %

Country	Job Change	Retire.	Death	Re.& De.	Total
Korea Japan Britain Netherlands Denmark Germany France	32.2 -5.2 21.0 45.2 14.4 2.6 10.1	27.7 73.0 n.a. n.a. n.a. n.a. n.a.	40.2 32.2 n.a. n.a. n.a. n.a. n.a.	67.9 105.2 79.0 54.8 85.6 97.4 89.9	100 100 100 100 100 100 100

1. Job change denotes net job change.

2. Re. and De. denotes retirement and death.

3. Retirement includes joblessness.

4. Retirement and death for European countries were estimated combining the survey data on job change and statistics on agricultural employment.

5. Korea - average of 1982, 1986, and 1988.

Japan - average of 1959～1987.

European countries - average of 1973, 1975, and 1977.

Source : Lee and Timmer (1993).

Job mobility through the labor market was so low that most of the decrease in agricultural labor force could be attributed to natural factors such as retirement and death as shown in Table 14. Furthermore, Figure 4 shows that most of non-agricultural labor force was supplied by new entrants rather than from the agriculture sectors in Japan and Korea. Job change from agriculture accounted for a negligible portion of all non-agricultural labor  supply in both countries throughout the period.

It should be noted that the above findings are confined to our analysis periods which are after the end of the 1950s for Japan and the 1980s for Korea. However, recalling the fact that the Japanese economy passed the turning point in the Lewis's sense around 1960, we can safely say that agricultural labor force was not the major source of labor supply to the non-agriculture sector even around the Lewis's turning point.

3. Transformation in Age Structure of Agricultural Labor Force

As mentioned in the previous section, job change of agricultural  labor  force is strictly limited and thus  the decrease in agricultural labor force is mostly ascribed to natural factors, and the increase of non-agricultural labor force is attributed to new entrants. Under these circumstances, the share of agriculture out of total new entrants should decrease much faster than the share of agricultural production so that the agricultural share of employment could be adjusted along with the decrease of the production share.

The relation between the agriculture's share of new entrants and that of production is investigated in time series data of seven developed countries and Korea. Applying a linear equation to this data, we obtain

(1)  SL = -1.4256 + 1.2761 SP,  [eqn: bar {R^2}] = 0.9292

(0.0493)

where SL denotes the agriculture's share of the new entrant and SP, agriculture's share of production. This result shows that agriculture's share of new entrants decreases 1.2761 times faster than the production share.  Meanwhile, agriculture's share of a generation changes very little once they get older than 30 years of age as implied by the low rate of job change in Table 13. As a result, the age profile curve(APC) of agricultural labor force, which shows the agriculture's share of employment by age group, shifts biased manner in Korea, making the slope steeper as presented  in Figure 5.

How long will this old age-biased change be sustained in Korea?  Since the agriculture's share of new entrants has a linear relationship with the production share, we have to investigate the shape of the production share curve to find out the change of agriculture's share of new entrants.  Change of the agriculture's share of production is represented as1:

(2) [eqn: TRIANGLE SPt APPROX SPt(1 - SPt) (g^a - g^n )]

where SP stands for the agriculture's share of production, △SPt denotes the change of SPt, ga denotes agricultural growth rate and gn non-agricultural growth rate.

If the growth difference, ga-gn, is constant, the production share curve takes an inverted S-shape with its inflection point at SP=0.5. However, we can safely say that the inflection point comes much later than SP=0.5 since the growth difference gets bigger in the earlier stage of development and eventually gets smaller in the later part of economic development. Further, due to the above two reasons, after the inflection point, the decrease in the agriculture's share of new entrants will get smaller and eventually disappear.

The above consideration leads us to the conclusion that old age-biased change of agricultural labor force will cease and the APC will become get  flat  in the  future as economic development  proceeds  and  growth  difference  gets  smaller. International experience supports our  theoretical inference. Figure 6 shows that the APC of agricultural labor force got flatter in Britain between 190l and 1977. Meanwhile, Figure 7 presents the international APCs for 1975.

1. The following relations are made use of:

SPt = SPt-1 (1+ga) / (1+g)

g  = SPtga + (1-SPt) gn Korea, Ireland, Italy, France, Japan,

Age profile curve is steeper in Greece, Germany, the Netherlands, and Britain in that order. This order is just the same with the order of agriculture's share of production in each country.

Britain reached the stage of flat APC and the Netherlands is approaching that stage. In France, Germany and Japan, that part of APC for those of younger than 40 years of age is almost flat, but it will take at least two decades for the APC to be completely be flat. Korea is still at the stage of getting steeper, and old age-biased change will continue for at least a decade .

V. Transformation of Farm Land Transfer

1.   Spurting Urban Land Market and Farm Land Prices

High speed economic growth has resulted in soaring of land prices in urban areas. Between 1974/76 and 1989/91, land prices in real terms have soared 6.5 percent per annum in the urban sector (Table 15).  Meanwhile, an average of 10,119 ha of farm land, which is about 0.5 percent of total farm land, has been transferred for non-agricultural use every year between 1967 and 1991. This spurting urban land market and persistent transfer of farm land for non-agricultural use have resulted in a concurrently in a rise of farm land prices.

Current farm land prices are expected to be determined as

(3) [eqn: E(PA_t ) = SUM from { {s}=0} to inf E(Rs) / (1+I)^S]

where E (PAt) denotes expected farm land price, E(Rs) expected rent at period s, and I discount rate. Meanwhile, expected rent E(Rs) of farm land is determined by the probability of being used for non-agricultural use at periods and expected rent for both agricultural and non-agricultural use.

(4) E(Rs) = PRs RNs + (1-PRs) RAs

where PRs denotes probability of being used for non-agricultural use at period s, and RAs and RNs denote agricultural and non-agricultural rent at periods respectively.

Substituting (4) into (3) , we obtain

(5) E(PAt) = PR PNt/(PR+i) + (1-PR) RAt/(PR+i)

where PR and RA are assumed to be constant for convenience. Equation (5) implies that spurting non-agricultural land market would be directly transmitted to the farmland market.

To test the above theoretical inference the following model is estimated applying farm land prices and imputed agricultural rent data between 1974 and 1991. The estimated result is,

(6)  ln PAt = 0.1318 + 0.8394 ln PNt + 0.3842 1n RAt

(6.96)            (1.76)

[eqn: BARR ^2] =  0.8801

where figures in parentheses denote the t-value. Agricultural rent RAt is represented by the imputed return to farm land. That is, all costs including imputed family labor wages but excluding rent are subtracted from revenue, and the obtained residual is taken as imputed agricultural rent.

This result is striking; farm land prices are more responsive to non-agricultural land prices than to agricultural rent. A 10 percent rise in non-agricultural land prices increases farm land prices by 8.4 percent while the same increase in imputed agricultural rent increases farm land prices only by 3.8 percent. As a result, farm land prices have spurted 6.4 percent per annum in real terms following the 6.5 percent increase in non-agricultural  land prices even if imputed agricultural rent had increased only 1.9 percent per annum during the same period (Table 15).

As easily to be expected from this divergence between farm land prices and rent, the rate of rent return to farm land has dropped down to 6.5 percent from 13.3 percent during the period. The rate of rent return to land is obtained by dividing the imputed rent by land price. However, this divergence between rent and farm land prices, followed by a drop in the rate of rent return to farm land, was commonly observed in the developed countries. Table 16 shows that the rate dropped down to less than 2.5 percent in these countries except Japan where the rate was 5.4 percent.

Table 15. Land Price Index and Rate of Return to Farm Land in Korea

	1974/6	1989/91	Increasing Rate (%)
Non-agricultural land price Paddy field land price (A) Imputed returns to paddy field(B) Paid rental for paddy field (C) Rate of rent returns to paddy field (B/A) (C/A)	100 100 100 100 13.3 5.0	292.2 285.3 137.3 193.7 6.5 3.4	6.5 6.4 1.9 4.0 - -

1. Paid rental is obtained as total rental payment divided by leased area.

Source : Lee J.H. et al.(1990), p.63.

Table 16. Rate of Rent Returns to Farm Land : International Comparison

unit: %

	1961	1970	1981	1989
Britain France Germany Netherlands Belgium Japan Korea	2.79 3.42 2.68 n.a 1.84* n.a n.a	2.56 2.23 1.34 2.30 1.29 5.05 9.09	1.71 1.84 0.85 1.64 0.90* 6.11 6.32	2.04 2.33 1.35 1.67 n.a 5.36 4.40

1. * denote 1960 and 1980, respectively.

Source : EUROSTAT and Dewit (1983 ) .

Lee J.H. et al. (1990), p.63.

2. Development of Farmland Tenure System

By the Land Reform Act of 1949, farm land was redistributed to resident farmers on an equity basis and tenant farming was prohibited in order to protect owner farms from a revival of nonresident landlords. At the same time, a legal ceiling of farm land ownership was set at three ha. By the Act, most of tenant farms were transformed into owner farms by 1950 as shown in Table 17. That is, 91.9 percent of total farm land was converted to owner farms and more than 80 percent of total farms were transformed into full-owner farms in 1950.

However, tenant farms and tenant farming areas have expanded rapidly since the Land Reform, and the trend accelerated after 1975 as shown in Table 18. This illegal practice might have prevailed because there were no actual penalties imposed for the violation of the law. This trend was probably to be expected because prohibiting tenant farming was impractical from the viewpoint of the economic requirement of the real world.

Table 17. Land Reform and Transformation of Farmland Tenure System

unit: %

Year	Owner Farm	Owner Farming Area
1945 1947 1950	14.2 17.0 80.7	35.0 39.9 91.9

Source  : KREI, The History of Land Reform in Korea,

p.1029 and 1034.

Table 18.  Expansion of Tenant Farming in Korea

unit: %

Year	Share of Tenant Area		Share of Tenant Farms
	A1	B2
1950 1960 1965 1970 1975 1980 1985 1990 1995 1997	8.13 12.0 n.a 17.2 13.8 n.a n.a 27.9 n.a n.a	n.a 5.9 14.7 17.8 13.2 18.4 26.6 35.4 42.2 43.5	n.a 26.4 (6.7) n.a 33.5 (9.7) 27.8 (7.9) n.a n.a 43.3 (9.8) n.a n.a

1.  Figures in parentheses denote full tenant farms.

Source : 1. MAF, Agricultural Census.

2. MAF, Farm Household Economy Survey Report

3. From Table 17.

Tenant farming was partly legalized in 1986 by the farm Land Lease Act to admit tenant farming within a limitation. In 1990, tenant farming areas amount to 35.4 percent of total farm land areas, and tenant farms including part and full tenants are now becoming the dominant type of farming .

As the trend of tenant farming accelerated, land leasing has come to play the dominant role in farm land transfer. Table 19 shows that during the period 1965～70 only 33.5 percent of the farms expanding their operational size and 14.4 percent of farms contracting their farm size had depended on leasing, but in the later period 1985～90 as much as 83.4 percent of the expanding farms depended on leasing.

It is also very noteworthy that, as shown in Figure 8, the correlation between the share of leased land and operational farm size turned into a positive relation from the negative in the 1980s.  In other words, before the 1980s land leasing played a role of enabling the smallest landholders to obtain a subsistence size, but in the 1980s it played a role of creating large-sized farms.

As result, 63.1 percents of farms larger than 3.0 ha are operated by tenant farmers, but only 28.8 percent of farms smaller than 0.5 ha are  by tenant farmers. In other words, an agrarian structure is emerging in Korea in which the owner-farmers are small farmers while the tenants are large farmers.

As shown in figure 8, such a transformation in agrarian structure emerged in Germany in the 1960s and in Japan in the 1970s. Meanwhile, Figure 9 shows that in 1975, the correlation between the share of leased land and farm size in developed European countries and the United States was all positive, and that most of the large-sized farms were operated by tenant farmers while small-sized farms were by full owner farmers. Thus we can safely say that leasing has become the main route of land transfer and that large-sized tenant farming has become the prevailing type of farming as economic development has proceeded.

Why has leased land increased so fast and leasing come to play a much more important role than purchasing land? As pointed out already, this trend is not a unique phenomenon of Korea but one that is very commonly in many developed countries.

First of all, we have to recall that farm land prices spurted, diverging out of the present value of net surplus of farm land. This increase in farm land prices raised farmer's expected capital gain from their farm land. As shown already in Table 15, farm land prices rose on an average of 6.4 percent per annum after subtracting the inflation effect. It means that farmers could expect a 6.4 percent rate of return in real terms from their land by just keeping ownership, and that farm land was a good investment portfolio under conditions of high inflation. As a result, farm land owners rented out their land even if they could not keep on farming. This kind of situation seems to be more or less the same in the developed countries too as implied by the divergence between farm land prices and rents. In addition to the expected capital gain, the increase of leased land can also be partly ascribed to demand-side factors.

We can safely say that farmers were forced to adjust their farm size as economic conditions changed in accordance with economic growth. A case study (Table 19) shows that between 1965～70, only 4.9 percent of farmers had adjusted their operational size per year, but between 1980～84, 18.5 percent adjusted their size per year. This resulted in a rapid increase in farm land transfer. Meanwhile, farm land prices rose fast as mentioned already. We can easily infer from these conditions that the size of funds required for the transfer had expanded too fast to be afforded by farmers. Thus the only way to realize the required transfer was leasing in.

3.  Transformation of Farm Size Distribution

So far we have been able to confirmed that farm land transfer has been substantially activated, and leasing has expanded to a great extent  to play a dominant role in such transfer. farm size distribution must have changed in accordance with the direction of farm land transfer activated largely by leasing.

Table 19. 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 Dependence on Leasing Rate of ContIacting Farms per Year Dependence on Leasing	3.1 33.5 1.8 14.4	4.3 51.3 4.0 38.8	5.2 62.1 7.8 54.7	10.0 75.8 8.5 63.3	11.2 83.4 n.a. n.a.

Source : Lee and Kim. (1984), p.69 and 75.

for 1985～90, Lee, D.H. et al. (1990).

Figure 10 shows changes in farm size distribution in Korea. By the mid-1960s farms smaller than 0.3 ha and farms larger than 1.0 ha increased, while mid-sized farms (between 0.3 and 1.0 -ha) decreased. In other words, polarization process was in progress until the mid-1960s in Korea. The farm distribution shifted on to favoring a mid-size concentration in the mid-1960s, and this was in progress for about 20 years.  During this period mid-sized farms increased while small and large-sized farms decreased. However, from the beginning of  the  1980s the size distribution shifted, tilting upward towards the large-size end of the spectrum. Farms of larger than 1.0 ha in size increased while farms smaller than 1.0 ha decreased. And, from the end of the 1980s, farms smaller than 0.3～0.5 ha began to increase again after a long trend of decrease. With this increase of small-sized farms, polarization in size distribution revived in Korean agriculture.

It is worthwhile to compare this transformation of farm size distribution with the experience of developed countries. However, the data required for this international long-term comparison of size distribution are available only for Japan and the Netherlands. Figure 11 shows that mid-size concentration was in progress in Japan from the beginning of the century to 1940. This trend was disturbed (between 1940 and 1950) by World War Ⅱ and the subsequent land reform. After 1950 an upward-tilt to the large-size end of the spectrum appeared, Small-sized farms decreased while large-sized farms increased. However, farms smaller than 0.5 ha began to increase again from the beginning of the 1970s and thus polarization began.

We now turn to the case of the Netherlands. Figure 12 shows that  mid-size concentration was in progress in the Netherlands until the mid-1950s. However, farms smaller than 10 ha began to increase from the beginning of the 1980s and thus polarization is in progress now.

Looking at the experiences of these three countries, we are able to some similarities. First, the mid-size concentration prevailed for a long time during the progress of economic development, and then the distribution shifted, tilting upward to the large size end of the spectrum. However, this upward-tilt could be sustained only for a short period, and then polarization followed this upward-tilt. Second, a transition period could be identified between the mid-size concentration and the upward-tilt, in which period the border line between upward and downward shift of the size distribution moved up towards the larger size. For example, in Korea the upper border line moved up to 1.5～2.0 ha from 1.0～1.5 ha in 1976, to 2.0～3.0 ha in 1981, and then to over 3.0 ha in 1983.  Meanwhile, the lower border line moved up to 1.0～1.5 ha from 0.5～1.0 ha in 1978, to 1.5～2.0 ha in 1989, and up to 2.0～3.0 ha in 1991. Very similar upward movement of the border lines can be detected in Japan and the Netherlands.

Our next question is why this transformation of farm size distribution took place in the course of economic development. We may first look into the polarization that took place in Korea before the mid-1960s.

Before the mid-1960s, non-agricultural employment was very limited,  and most of the second or third sons along with the first son were employed in the agricultural sector. As a result, farms used to be partitioned for the second or third sons for them to create new farms.   Alternatively, the second or third sons turned into either  a tenant farm,  renting a patch of land, or an agricultural laborers without land. This is the process by which the total  number of farms and farms smaller than  0.3 ha increased until the mid-1960s. Meanwhile, farm wages remained as low as the income level of very small-sized tenant farmers so long as continuous supply of agricultural laborers prevailed. Employing these agricultural laborers, large-sized farms could sustain processes of enlarging their sizes transcending the limitation of family labor.

Now we may turn to the mid-size concentration between the mid-1960s and the beginning of the 1980s. As non-agricultural employment expanded, the second and third sons or even the firsts on did not have to be employed in agriculture. Farms did not have to be partitioned and very small tenant farms did not have to be created by the second and third sons. Meanwhile, as the supply of agricultural laborers declined, large-sized farms had to contract their farm size to keep within the capacity of family labor. They rented out parts of their farm lands to convert into mid-sized farms. It was the small-scale farmers who rented in these which were previously operated by owners of large-sized farms. The reasons for this is that operators of smallholdings could afford to bear the cost of higher rents despite low returns as long as renting in additional land could increase the total working hours of family labor and thus total family income. As a result, many of the small holdings could move upward to mid-sized farms.

Finally we turn to the current polarization. After the economy passed the turning point in Lewis's sense, agricultural wage rose so fast that farm mechanization took place rapidly in the 1980s as shown in Figure 13. This mechanization raised the level of payable rent of large-sized farms, and the direction of land transfer shifted to large-sized farms at the beginning of the 1980s. From the beginning of the 1990s part-time very small-sized farms began to increase. This is the polarization now in progress now in Korea.

VI. Current Situation and Prospects for Korean Agricultural Structure

1. Structural Adjustment Policies under the WTO system

The three failures in agricultural adjustment have resulted in a substantial   and persistent productivity difference between sectors and a drastic increase in the nominal protection rate. The nominal productivity ratio has been as low as about 0.4 since1960; the nominal protection rate increased from -46 in 1960 to 262 in 1989. However, it is to be noted that the rapid increase of nominal protection was ascribed mostly to the collapse of international prices for agricultural commodities rather than to  the rise of domestic agricultural prices.

However, according to the UR agreement, Korea has opened almost all of the agricultural markets and reduced subsidies for agricultural production. Taking into consideration the fact that Korean agriculture  had failed in the three dimensions of structural adjustment and thus faced prolonged slow-down even under high protection, the situation was indeed very serious.

The Korean Government set up a very ambitious agricultural reform plan, the so-called Integrated Policy for Rural Progress, in order to tackle the serious situations. According to this plan, a series of structural adjustment policies has been implemented and about US$35.7 billion has been invested for the development of agriculture and rural areas between 1991 and 1998.

First, farmland Purchase Support Program, which had been initiated in 1988 to promote owner farmers to purchase farm land, was expanded in 1994 under the name of Farm Size Optimization Program. This program included three kinds of sub-programs; Farm Land Purchase Program, Long-term Farmland Lease program, and Farm Land Exchange and Consolidation Program. Farm Land Purchase Program was the leading one until 1996, but thereafter the Long-term Farm Land Lease Program became the dominant one since 1997. This change reflects the government's realized leasing could be more effective than purchasing for enlarging farm size.

Second, Farmers' Retirement Program, which was called Direct Payment for Farm Size Enlargement, was initiated in 1997 in order to promote farm land transfer from old farmers to young full-time farmers. Farmers, who are older than 65 years of age and want to retire from farming, can get a direct payment 2,480 thousands/ha if he or she sells or lease his or her farm land to full-time farmers.

Third, the ownership of agricultural land was limited to those who were engaged in farming. But, now those who are going to engage in farming and can show the eligibility for farming may purchase farm land. This is to open the way that new entrants to gain access to farming business.

Fourth, the ceiling on the ownership of farm land had been three ha since the Land Reform. The ceiling was abolished in the agricultural promotion zone. Outside the zone, the ceiling is still three hectares, but the limit may be extended up to five ha if the mayor or  county chief acknowledges the need and eligibility for such extension.

Fifth, three kinds of farm enterprise fostering programs were  initiated; Full-time Family Farm Fostering Program, Corporate and Company Farm Fostering Program, and Education and Training Program. These programs were to foster leading farmers to enlarge their farm size.

2.  Situation and Outlook

The agricultural growth rate, which s1owed downed to -0.6 percent between 1986/88 and 1990/92, recovered up to 2.2 percent between 1990/92 and 1995/97 as shown in Table 20. At the same time, agricultural employment decreased -5.5 percent per annum and thus labor productivity increased by 7.7 percent in the period. This recovery was dampened by the financial crisis at the end of 1997 and the growth rate declined to -6.3 percent in 1988.

Setting aside the effects of the financial crisis, productivity difference between agriculture and non-agriculture sectors shrank in 1990s as shown in Figure 14. Table 20 shows that the performance of 1990s was ascribed to the growth of livestock and vegetable sectors. Livestock sector showed a remarkable growth because it had decreased too much in the beginning of 1990s and subsequently underwent a fast recovery in the mid-1990s. Meanwhile greenhouse-grown vegetable became available all year round and vegetable consumption got revived in 1990s to boost up  vegetable production. However, quota system for beef will be abolished and the market will be open throughly from 2001. And demand for greenhouse-grown vegetable seems to be approaching its ceiling.

Farm land transfer was activated in 1990s and the acreage share of the  large  farms i.e. over three ha in size, increased from 9.6 percent in 1990 to 20.2 percent in 1995 as shown in Table 21.

Table 20. Sources of Agricultural Growth in 1990s

unit: %

	Growth Rate	Contribution Rate
Rice	-1.12	-18.9
Vegetable	4.58	50.2
Fruit	5.37	21.4
Livestock	6.73	35.1
Total	2.20	100

Table 21. Acreage Distribution by Farm Size

unit: %

Farm Size	1980	1990	1995
0.1 over	100	100	100
0.5 over	91.1	92.6	93.2
1.0 over	62.8	69.9	74.1
1.5 over	35.7	45.5	54.4
2.0 over	19.1	27.1	38.6
3.0 over	6.1	9.6	20.2
Average Size (ha)	1.43	1.63	2.13

Table 22. Farm Size and Production Cost

Farm Size (ha)	0.3	0.5	1.0	2.0	3.0	5.0	10.0
Cost Elasticity	0.924	0.917	0.907	0.897	0.892	0.880	0.875
Cost Index	111	106	100	93	90	85	78

As shown in table 22, production cost decreases increasingly as the farm size increases. Production in than small farms, i.e. less than 0.3 ha in size costs 11 percent more than in a farm of one ha in size, and production in a farm of five ha costs 15 percent less than in a farm of one ha. It implies that production costs will decrease fast as farm size expands in the future.

VII. Concluding Remarks and Implications

Many developed as well as developing countries still suffer from income difference between the agriculture and non-agriculture sectors in spite of protection for agriculture. On the other hand, agricultural exporting countries argue that agricultural protection should be eliminated quickly in all countries. This is a critical dispute which causes much agony in trade negotiations.

International trade dispute triggered off some noteworthy assertions in both academic and policy-making circles. For example, agricultural protection is asserted to be a result of political negotiation between farmers and government against a background of declining resistance from consumers. According to the hypothesis, the adhesiveness and effectiveness of farmers' lobbying activities increase while consumers' concern against it declines as the agriculture sector shrinks along with the economic growth. As a result, 1ow income countries tax their agriculture while high income countries protect and subsidize their agriculture. Free trade advocacy has the aims of fairness and persuasion.

It is also argued that free trade can make a better opportunity for the agriculture sector in the importing countries. In the assertion, Denmark's and the Netherlands' approaches are contrasted with France's and  Germany's policies adopted when agricultural commodities flooded into the European market at the end of 19th century. The Netherlands and Denmark took a free trade option while France and Germany adopted  a protection policy.

It was the crossroad, the assertion says, to divide the strong Dutch and Danish agriculture from the weak French and German agriculture of those days.

This assertion gives rise to the notion that many developed countries could have much stronger agriculture than what it is now if they had got rid of political trade in agricultural policy, and thus agricultural protectionism earlier. And very naturally, this  notion  is  extended to newly industrializing countries including Korea.

How fast can the agricultural market be opened without devastating consequences for protected farmers? Will the free trade option really make all happy? What policies, if any, might substitute for protection? In order to answer these questions, an understanding is needed of how fast the agriculture sector can be adjusted to keep up with the non-agricultural productivity growth and the change of the international market for agricultural commodities. This is the agricultural adjustment problem in a growing economy .

Korean agriculture underwent an impressive transformation process in the late 1970s and the early 1980s. In the 1960s and the 1970s rice and vegetables were the engines of agricultural growth in Korea since the production of these two crops increased fast with the persistent increase of demand for these commodities. Self-sufficiency of rice was attained, and its per capita consumption began to decrease from the end of the 1970s. At the same time, vegetable consumption approached the saturation level.

Korean agriculture failed in diversifying production to new income-elastic or exportable commodities. As a result, the agricultural growth rate dropped to 0.78 percent per annum in the 1980s from more than 4 percent in the previous decades. This drastic decline in agricultural growth was an extraordinary phenomenon not experienced in the developed countries.

Notwithstanding this drastic slow-down of agricultural growth and an acceleration of growth difference between sectors, relative labor productivity of agriculture in constant prices began to increase very mildly from the beginning of the 1980s.

This was because of the fact the labor input decreased at an accelerating speed and labor productivity growth proceeded at a much higher rate than land productivity growth from the end of the 1970s, facilitated by the diffusion of modern farm machinery such as transplanting and harvesting machines for rice. If this upward trend in relative productivity could be sustained as seen in other countries, the beginning of the 1980s could then be identified as the turning point in productivity difference between sectors in Korean agriculture.

Due to the rapid decrease in agricultural labor force, employment structure changed 3～8 times faster in Korea compared with the developed countries.  There are three paths in reallocating the labor force between sectors; job change, death and re tirement of current labor force, and allocation of new entrants. Out of these three, the net rate of job change from agriculture to non-agriculture was only around one percent. Job change in agricultural labor force was so 1ow that most of the decreases in agricultural labor force could be attributed to natural factors such as retirement and death, and most of the non-agricultural labor force was supplied by new entrants rather than from the agriculture sector.

Along with the decrease in agricultural labor force, the age profile of agricultural labor force has changed biasing to old age. However, this old age-biased change in agricultural labor force will cease, and the age profile curve will get flat as in Britain and the Netherlands in the future as economic development proceeds and growth difference gets smaller.

Ownership of operational management of farm land should be transferred to farms large enough in size to match the decrease in labor force. In Korea the change in operational farm size has been activated through purchasing in the 1960s and the 1970s, but through leasing rather than purchasing in the 1980s. This switching from purchasing to leasing can be attributed to the upswing in farm land prices, which was transmitted from the non-agricultural sector. At the same time, before the 1980s, land leasing played a role for the smallest land holders to enlarge their farm size to a subsistence size, but in the 1980s, land leasing played a role of creating large-sized farms. In other words, an agrarian structure, in which  owner-farmers are small-sized farmers while tenants are large-sized farmers, is emerging in Korea. This kind of transformation in land transfer was common in the developed countries.

This transformation of land transfer was accompanied by a transformation in farm size distribution. Until the mid-1960s a polarization was in progress. This polarization was replaced by a mid-size concentration in the mid-1960s, which was sustained for about 20 years. However, from the beginning of the 1980s, farm size distribution shifted tilting upward to the large size spectrum, bordering at one hectare, and from the end of the 1980s polarization was revived. This  transformation of size distribution seems to be common in the developed countries.

The Korean experience in structural transformation of agriculture has some implications for agricultural policy in developing countries. First of all, new income-elastic or exportable agricultural commodities should be developed before demand for traditional staple crops slows down. Second, in order to activate reallocation of labor force between sectors in the course of economic development, job training and retirement programs should be instituted as important policy measures. Third, since leasing comes to play a dominant role in land transfer and in creating large-sized farms in the course of economic development, leasing should be given policy support as an important measure promoting land transfer and creating large-sized farms.

Figure 1. Transformation of Industrial Structure in Korea

<Production Structure>

<Employment Structure>

Source: EPB. Annual Survey Report on the Economically

Active Population Survey.

Bank of Korea, National Account

Figure 2. Factor Input in Korean Agriculture

Source : Capital - Lee and et.al(1987) P.21

Labor - Same with Figure 1.

Land - MAF, Statistical Yearbook on Agriculture,

Forest and Fisheries.

Figure 3. Growth of Land and Labor Productivities

in Korean Agriculture

1. Based on 1963 = 100.

2. Agricultural value-added products divided with factor input index.

Source: From Figure 1 and 2.

Figure 4. Source of Non-agricultural Labor Supply

1. Total new entrant means(from school+ from others).

Source : Korea - EPB, Report on Employment Structure Survey.

Japan - Labor Mobility Survey.

Figure 5. Shift of Age Profile Curve of Agricultural Labor

Force in Korea

Source: EFB, Annual Report on the Economically Active Population.

Figure 6. Shift of Age Profile Curve of Agricultural

Labor Force in Britain

Source: Lee and Timmer(1993).

Figure 7. Age Profile Curve of Agricultural Labor Force : International Comparison in 1975

<Panel A>

Source: Lee and Timmer(1993).

Source: Lee and Timmer(1993).

Figure 8. Changes in Share of Rented Area by Farm Size

<Germany>

Source: Koreanaga(1991), p. 155

<Japan>

Source: MAF, Agricultural Census.

Figure 8. Changes in Share of Rented Area by Farm Size

<Korea>

Source: MAF, Agricultural Census.

Figure 9. Share of Rented Area by Farm Size

in Developed Countries

Sourece: Korenage(1991), p.151

Figure 10. Change in Farm Size Distribution in Korea

	0.3	0.5	1.0	1.5	2.0		3.0 (ha)
1960	+			+	-			+	Polarization
			+
1965
1970	-								Mid-Size Concentration
1975
1980									Upward-Tilt
							+
1985			-
1990
									Polarization
1991

Source : MAF, Statistical Yearbook on Agriculture,

Forest and Fishery.

Figure 11. Changes in Farm Size Distubution in Japan

	0.5	1.0	1.5	2.0	3.0
1910		+
1920	-			+	-		Mid-Size Concentration
1930
1940
1950			+
1960	-						Upward-Tilt
1970						+
			-				Polarization
1980	+

Source : MAF, Statistical Yearbook on Agriculture and Forest.

Figure 12. Changes in Farm Size Distribution in Netherlands.

	1	5	10	20	50	(ha)
1910
1930	-			+	-		Mid-Size Concentration
1950
1955
1962							Upward-Tilt
1970	-
1983						+
			-				Polarization
1984	+
1987

Source: W.Huizinga & D.Sariker (1986) and EROSTAT.

Figure 13. Agricultural Mechanization in Korea

1. Right hand side scale is for power tiller

Source : Agricultural Machinery Cooperative,

Agricultural Machinery Year Book.

Figure 14. Productivity Difference between Sectors

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