Home > PRODUCTION LINKAGES BETWEEN FARM AND

PRODUCTION LINKAGES BETWEEN FARM AND


PRODUCTION LINKAGES BETWEEN FARM AND

NONFARM SECTORS IN FIJI ISLANDS 

 

K.L. Sharma

Economics Department

University of the South Pacific

Suva, Fiji Islands 

 

INTRODUCTION

 

The interrelationships between agricultural and nonagricultural sectors during the process of economic development have been extensively discussed in the literature (Hirchman, 1958; Balog, 1961; Johnston and Mellor, 1961; Rangarajan, 1982).  Agriculture provides food, raw materials, and export earnings for the growth of nonfarm sectors.  On the other hand, nonagricultural sectors support agriculture by supplying inputs (fertilizers, insecticides, irrigation structures, infrastructure and markets for farm produce).  Consequently, the deficiency in production of one sector becomes the limiting factor for the growth of other sectors, thereby affecting the overall growth of the economy.  It is imperative to study the magnitude of production and consumption linkages of sectors for achieving a desired rate of growth (see Delgado, Hopkins and Kelly, 1998; Haggblade, Hammer and Hazel, 1991; Mureithi and Sharma, 1984; Schultz 1998). 

This paper attempts to study the magnitude of agricultural production linkages with manufacturing and services sectors in Fiji Islands economy using an input-output table.  Various types of sectoral linkages are calculated to study the interrelationships between agricultural and nonagricultural sectors.  The sectors are ranked on the basis of their degree of effect on other sectors.  Finally, the Leontief inverse is used to measure the impact of any change in final demand of a sector in generating additional output in various sectors of the economy. 

Fiji is a small open Island economy in the South Pacific region.  It has a population of about 800 thousand with per capita GDP of US$2250.  Agriculture contributes about 19 percent of GDP and 50 percent of employment.  A large subsistence agricultural sector exists along with modern nonfarm sectors in the economy.  Sugarcane is the major crop and forms the backbone of the economy.  Other agricultural items include coconut, ginger, cassava, dalo, fruits and vegetables, livestock, fishery and forestry products.  Sugar and tourism are main sources of foreign exchange earnings.  Under manufacturing, food processing and garment industries have grown rapidly. Transport and communications network with banking and financial services are developed in the main Island Viti Levu.

 

INTERSECTORAL LINKAGES 

The input-output table of the Fiji economy which is currently used relating to 1972 and covers 23 sectors at 1972 producers' prices.  This table is aggregated into eight main sectors namely, agriculture; food processing; other manufacturing and mining; utilities, transport and communications; building and constructions; distribution; government services; and other services.  The sector-grouping scheme is given in Appendix I.  The intersectoral flows between eight sectors are shown in Appendix 2.  This systematic grouping of sectors broadly explains the sectoral interdependence between agriculture, manufacturing, and services sectors. 

Measurement of sectoral linkage 

The interindustry linkage has three components:  the forward linkage effect, the backward linkage effect, and the total linkage effect.  The two former describe the direct effects (forward to the sectors utilizing the output of the sector, and backward to the sectors providing inputs for the sector) that result from a unit increase in gross output of a sector.  The total interindustry linkage effect measures both the direct and indirect repercussions of a unit increase in final demand of a sector which consists of private consumption, government expenditure, gross fixed capital formation, net exports and changes in stock.  These linkages can be expressed as follows: 

  1. Forward linkage
 

    LFi =  Xij

                j____

                    Xi 

          where, LFi is the forward linkage of ith sector.

        Xij represents the amount of commodity i used in production of commodity j and

        Xi is the gross output of ith sector (row vector) which consists of   intermediate and final demands. 

        1. Backward linkage
         

          LBj =  Xij = aij

                      i____            i

                        Xj

         

            where, LBj is the backward linkage of the jth sector.

            Xj stands for the gross output of jth sector (column vector) which consists of total intermediate purchases and gross value added.

            aij represents input-output coefficient which explains the amount of ith commodity used in the per unit production of jth commodity. 

      1. Total interindustry linkage
       

        PLj = aij*

                            i  

        where, aij* is the Leontief inverse i.e. (I-A)-1 matrix.

          I stands for identity matrix and A stands for input-output coefficients matrix.

          PLj  is the total interindustry linkage of jth sector. 
           

          INTERINDUSTRY LINKAGE EFFECTS 

          The input-output coefficient and the Leontief inverse (I-A)-1 matrices are presented in Table 1. 

          The use of domestic internal inputs (sector's output used as input in its own production) per unit of gross output by sectors is given by the diagonal elements in the input-output coefficient matrix.  The coefficient of internal inputs of the manufacturing sector is 0.09 followed by 0.06 for utilities, 0.04 for building and construction as well as for distribution, and 0.03 for other services.  Agriculture, food processing, and other services use their outputs as inputs less than 0.006 per unit of gross output. 

          Agriculture uses more inputs from services than from any other sector: the coefficient of inputs purchased by agriculture from services is 0.04 followed by the inputs purchased from the distribution sector (0.03).  The food processing industries use farm inputs to the extent of an input coefficient of 0.5 per unit of gross output.  This shows that food processing industries rely heavily on agriculture for their raw materials.  It is also evident from the table that the overall manufacturing sector including food processing takes more inputs from agriculture (0.51) than they supply to agriculture (0.02), indicating that manufacturing is highly dependent on agriculture than agriculture is on manufacturing.  Manufacturing sectors are dependent on the distribution sector for their inputs to the extent of 0.15. 

          The Leontief inverse (I-A)-1 presented in Table 1 shows direct and indirect requirements of output per unit increase in final demand by sectors.  The total interindustry linkage effect of each sector is calculated by summing up the  

            Table 1 Input-Output Coefficient and the Leontief Inverse Matrices 1972

            _____________________________________________________________________________________________________________________

          Sector         1     2     3     4    5    6    7    8

          ________________________________________________________________________________

          1. Agriculture   .0016 .4941 .0138     -    -    -    - .0129

          2. Food processing  .0111 .0059 .0031     -    -  .0175 .0053 .0220

          1. Other manufacturing

            and mining   .0100 .0110 .0892 .0422 .2451 .0370 .0165 .0198

          4. Utilities, transport

            and communication  .0160 .0293 .0562 .0563 .0159 .0335 .0258 .0432

          5. Building and construc-

               tion    .0075 .0025 .0052 .0039 .0377 .0007 .0497 .0042

            6. Distribution   .0293 .0571 .0904 .0718 .0562 .0395 .0067 .0546

            7. Government services  .0015    -  .0011    - .0002    - .0002    -

            8. Other services  .0370 .0114 .0320 .0848 .0183 .0595 .0250 .0317

            _____________________________________________________________________________________________________________________ 

            (I-A)-1 Matrix (direct and indirect requirements)

            _____________________________________________________________________________________________________________________

            Sector        1     2     3      4      5      6      7      8

            ______________________________________________________________________________ 

            1. Agriculture   1.0088   .5027   .0194   .0041   .0062   .0117   .0041   .0261

            2. Food processing    .0130 1.0140   .0068   .0041   .0035   .0204   .0065   .0247

            1. Other manufacturing

              and mining     .0170   .0262 1.1092   .0571   .2868   .0473   .0352   .0300

            4. Utilities, transport

              and communication    .0220   .0466   .0731 1.0713   .0399   .0444   .0327   .0533

            5. Building and construction   .0084   .0072   .0068   .0052 1.0412   .0017   .0522   .0053

              6. Distribution     .0378   .0843   .1142   .0919   .0935 1.0546   .0181   .0687

              7. Government services    .0015   .0008   .0013   .0001   .0005   .0001 1.0003   .0001

              8. Other services    .0437   .0414   .0511   .1017   .0387   .0710   .0322 1.0440

              ____________________________________________________________________________________________________________________

              Source:  Calculated from Appendix 2 .

             

             

            column vector of inverted matrix and is shown in Table 3.  Increase by one million Fiji Dollar (F$) in the final demand for agricultural goods would require an increase of about 1.15 million F$ in aggregate output of the economy; and an increase of 1 million F$ in the final demand for the output of food processing, and other manufacturing would require an increase of 1.72 and 1.38 million F$ in total output respectively.  Thus the intermediate input demand generated by manufacturing sectors per one F$ of final demand is greater than the intermediate demand generated per one F$ of final demand for farm output. 

            The ranking of total interindustry linkage effects of sectors is presented in Table 2.  It is evident from the table that the food processing sector stands first, followed by building and constructions, other manufacturing and mining; and utilities, transport and communications.  Agriculture is ranked last in the group. 

            Table 2 also illustrates the forward and backward linkage effects.  The `other manufacturing and mining sector' ranks first in supplying its output to various sectors of the economy with the forward linkage coefficient of 0.53 followed by agriculture (0.42).  The output of other nonfarm sectors including services mainly goes to the final demand (65 to 99 percent) for direct consumption. 

            The food processing and other manufacturing sectors rank high in backward linkage with 0.78 and 0.56 input requirement per unit of gross output respectively.  The other nonfarm sectors have the input requirement in the range of 31 to 50 percent of their output.  Agriculture which has the smallest input requirement (20 percent) contributes the highest (80 percent) to the gross value added.  The requirement of imported inputs turns out to be highest (40 percent) for the `other manufacturing sector'.  Food processing industries use domestic inputs to the extent of 78 percent of their total requirements.

             

             
             
             

             

            Table 2 Interindustry Linkages and their Rankings, 1972

            _________________________________________________________________________________________________________________________________ 

                                             Forward Linkage                                    Backward Linkage                     Gross Total Inter-

            Sector    Intermediate  Final  Domestic Imported Total  value industry

                                  Demand   demand  inputs   inputs  intermediate added linkage

                                                                                          purchases

            _____________________________________________________________________________________________________________________ 

            1. Agriculture   .4247 (2)  .5753  .1140  .0881  .2021 (8) .7979 1.1522 (8) 

            2.  Food processing  .0683 (7)  .9317  .6113  .1714  .7827 (1) .2173 1.7232 (1) 

            1. Other manufacturing

              and mining   .5283 (1)  .4717  .2910  .2713  .5623 (2) .4377 1.3819 (3) 

              4.  Utilities, transport

                and communication  .3539 (3)  .6461  .2590  .2372  .4962 (4) .5038 1.3355 (4) 

              5.  Building and construction .1190 (6)  .8810  .3734  .1686  .5420 (3) .4580 1.5103 (2) 

                6.  Distribution   .3396 (4)  .6604  .1877  .1242  .3119 (7) .6881 1.2512 (6)  

                7.  Government  services  .0044 (8)  .9956  .1292  .1897  .3189 (6) .6811 1.1813 (7) 

                8.  Other services  .2265 (5)  .7735  .1884  .1738  .3622 (5) .6378 1.2522 (5)

                _____________________________________________________________________________________________________________________ 

                Figures in parentheses indicate the ranks of sectors in respective linkages. 

               

               

              CONCLUSION 

              This paper has presented intersectoral linkages between farm and nonfarm sectors in Fiji Islands using input-output tables for 1972.  Manufacturing sector especially food processing turns out to be the dominant sector in generating additional output in the economy through direct and indirect effects with a given change in final demand for the sector.  Agriculture ranks second in forward linkages in terms of supplying its output to other sectors to the extent of 42 percent of its output.  Agricultural sector has the least input requirements (backward linkage) compared to nonfarm sectors and contributes highest (80 percent) to gross value added in the economy. 

              The other manufacturing and food processing sectors are highly dependent on agriculture for their raw materials.  Agricultural production needs to be stepped up in order to support production in other sectors and to earn foreign exchange earnings.  Improvements in agricultural research, extension methods and infrastructure are required to enhance agricultural production in the country. 

             

              Appendix 1 

              Sector Grouping Scheme* 
               

              The agricultural sector consists of subsistence (1), sugarcane (2), and other agriculture (3).  Food processing includes sugar manufacturing (5), and other food production (6).  Other manufacturing, mining, and quarrying consists of textiles, wood, printing, rubber and plastic products (7), cement and earthware products (8), other manufacturing (9), and mining and quarrying (4).  Building and construction represents building construction (11) and other construction (12).  Distribution represents distribution (13).  Government services include government services (20), education (21), and health (22).  Other services consist of hotels, restaurants etc. (14), banking and finance (17), ownership of dwellings (18), other services (19), and private non-profit institutions (23). 
               
               

              * Figures in the parentheses are the sector numbers of the Input-Output Table for Fiji, 1972.

               

                 

               

              Appendix 2 

              Total Intersectoral Flows, Fiji Economy, 1972 (Million F$ at 1972 Producers' Prices)

              _____________________________________________________________________________________________________________________ 

                                                                                              Final   Gross

              Sector      Intermediate demand    Total  demand  output

                                            1    2      3     4     5    6    7      8 

              1. Agriculture       115 28291     524     -      -     -     -     848   29778    40336    70114

              2. Food processing      783    337     118     -      -   1022   201   1449     3910    53354    57264

              1. Other manufacturing

                and mining       694     631   3391   1609    9663   2164   619   1308   20079    17929    38008

              4. Utilities, transport

                and communication    1120   1677   2137   2147     628   1961   969   2851   13490    24626    38116

              5. Building and construc-

                   tion        525     145     199     147   1488       40 1868     277     4689    34730    39419

                6. Distribution     2056   3269   3434   2739   2215   2316   252   3602   19883    38672    58555

                7. Government services      106      -       41     -         9      -        9     -       165    37393    37558

                8. Other services    2595     654   1218   3231     722   3485   937   2088   14930    51000    65930

                _____________________________________________________________________________________________________________________

                Domestic inputs     7994 35004 11062   9873 14725 10988 4855 12423 106924  298040  404964

                _____________________________________________________________________________________________________________________

                Imports      6174   9815 10308   9041   6649   7274 7126 11455   67842

                ______________________________________________________________________________________

                Gross value added  55946 12375 16638 19202 18095 40293 25597 42052 230198

                ______________________________________________________________________________________

                Gross output   70114 57264 38008 38116 39419 58555 37558 65930 404964

                ______________________________________________________________________________________ 

                Source of primary data:  Bureau of Statistics, Input-Output Tables for Fiji, 1972, Suva : Government Printers, September 1974.

               

              REFERENCES 

              Balog, T., 1961.  Agriculture and Economic Development, Oxford Economic Papers, 13:24-42. 

              Delgado, C.L., J. Hopkins, and V.A. Kelly, 1998.  Agricultural Growth Linkages in Sub-Saharan Africa, Research Report 107, Washington, D.C.: International Food Policy Research Institute. 

              Haggblade, S., J. Hammer, and P.B.R., Hazell, 1991.  Modeling Agricultural Growth Multipliers, American Journal of Agricultural Economics, 73 (May): 36-374. 

              Hirchman, A., 1958.  The Strategy of Economic Development, New Haven, Conn., U.S.A.: Yale University Press. 

              Johnston, B.F., and J.W. Mellor, 1961. The Role of Agriculture in Economic Development, American Economic Review, 51(4): 566-593. 

              Mureithi, L.P., and K.L. Sharma, 1984.  Growth Linkages between Agriculture and Industry in Kenya, Journal of Eastern African Research and Development, 14: 147-161. 

              Rangarajan, C., 1982.  Agricultural Growth and Industrial Performance in India.  Research Report 33, Washington D.C.: International Food Policy Research Institute. 

              Schultz, S., 1998.  Approaches to Identifying Key Sectors Empirically by Means of Input-Output Analysis.  In Input-Output Analysis Volume III, eds. H.D. Kurz, E. Dietzenbacher, C. Lager. Cheltenham, UK : An Elgar Reference Collection. 
               


               

               

Search more related documents:PRODUCTION LINKAGES BETWEEN FARM AND

Set Home | Add to Favorites

All Rights Reserved Powered by Free Document Search and Download

Copyright © 2011
This site does not host pdf,doc,ppt,xls,rtf,txt files all document are the property of their respective owners. complaint#downhi.com
TOP