World Bank Reprint Series: Number 238

Richard H. Goldman and Lyn Squire

Technical Change,Labor Use, andIncome Distribution inthe Muda Irrigation Project

Reprinted with permission from Economic Development and Cultural Change, vol 30,no. 4 (July 1982), pp. 753-75.

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Technical Change, Labor Use, and IncomeDistribution in the Muda Irrigation Project*

Richard H. GoldmanHTlarva l Unihersity

Lyn SquireWordld Bank

I. IntroductionThe Muda Irrigation Project supplies supplemental water to about250,000 acres of paddy land in northwest Malaysia, approximately athird of Malaysia's paddy land.I From 1970, when "off-season" waterwas first supplied to a portion of the Muda area, to 1975, when waterwas supplied to the full feasible command area of the project, most ofthe area's 50,000 farm families switched from single- to double-cropping paddy. This switch was accompanied by an extremely rapidadoption of short-maturing, improved varieties of rice and a large in-crease in paddy yields in both seasons. The result of all this structuralchange was a remarkable leap in production from 384,721 tons in 1969to 795,830 tons in 1974, about 509% of Malaysia's production.2 Someaspects of the project's progress are reported in table 1.

This paper focuses on factors influencing the rate of change of netfarm income in families adopting the double-cropping regime. Changes

* We acknowledge the cooperation and support of the Muda Agricultural Develop-ment Authority. In addition, Goldman's research was partially supported by UniversitySains Malaysia, the Harvard Institute for International Development, and the FordFoundation. Otto C. Doering III generously allowed us use of his raw data, for which weare grateful. The views expressed here are ours and not necessarily those of the WorldBank.

I The project entailed thle construction of two dams and storage reservoirs withconnecting tunnel and 62 miles of new canals. In addition, a number of secondary andtertiary canals were improved, and numerous access roads and a tidal barrage wereconstructed. The main season crop, or traditional crop, is canal irrigated from rain-fedriver flows. Muda Project water is released only in the off-season.

2 Prior to the Muda Project most of the land lay fallow in the off-season, so theincrease in rice production has not entailed a sacrifice of other crops.

1 1982 by The University of Chicago. All rights reserved.0013-0079/82/3004-0004$0 1.00

TABLE I

MAJOR CHANGES IN THE MUDA PADDY ECONOMY: 1969-75

PreprojectAverage(1966-69) 1970 1971 1972 1973 1974 1975

Area with off-season water (acres) .... 28,366* 83,000 115,000 170,000 214,000 240,000 244,500Off-season yield (tons/planted acre)t . . 1.07 1.50 1.57 1.59 1.62 1.78 1.67 ,Main-season yield (tons/planted acre)t 1.31 1.45 1.47 1.54 1.55 1.62 1.62Annual crop intensityt .............. 1.11 1.32 1.44 1.65 1.82 1.93 1.94Farm-gate price index ... ............. ... 100 ... ... 123 ... 184 r

* Kedah and Perlis state total.t Yield per harvcrted acre.t Based on a project area of 260,000 acres.

Richard H. Goldman and Lyn Squire 755

in net farm income comprise changes in asset ownership, allocation,and productivity, as well as changes in factor and output prices. Farmfamily assets are primarily comprised of paddy land and labor. Thesurveys we have analyzed show no consistent or significant changes inthe distribution of owned land or operated paddy land. For example,average farm size in pre- and postproject farm surveys is 4-4.5 acres.The 1973 FAO/IBRD agricultural household survey (described byRoger Slade in his "Muda River Study: Discussion Paper" [Rome:FAO, 1974]) shows the distribution of tenancy as 41% owners, 37%tenants, and 22% owner-tenants, operating 41%, 30%, and 29%5 ofthe land, respectively. Surveys show no change over time.3 Similarly,between the two periods the number of workers per household remainsat 2.5. These characteristics vary considerably among households, how-ever, and so play an important role in the distribution of net farmincome.

Asset allocation, particularly of family labor, and prices have beenmuch less passive since the project's inception. The Muda region sup-ports very active factor markets, and there have been importantchanges in both the share of factors in output and in the distribution oflabor input between family and hired workers. In addition, the publiclyfinanced irrigation project and the introduction of new seed varietieshave increased the physical productivity of family-owned assets. Inthis study, therefore, changes in farm income embody changes inphysical input use and productivity as well as in relative prices.

The structure and content of the paper reflect our view of therelative importance of the factors influencing net farm income. Treatingland as a fixed factor, ignoring rent payments, and omitting all variablefactors except labor (by far the most important), we may express netfarm income (Y) as:

Y = pF-w (D-S), (1)

where p and F are the price and volume of paddy, wi, is the marketwage, D is total labor input, and S is family labor input (so that D - Smeasures hired labor input). Assuming profit maximization and aconstant-returns-to-scale production function, we may rewrite theequation as:

Y = *(t, w/p)A + it'S, (2)

where 1 indicates the per acre level of maximized profits when alllabor is priced at the market wage, t represents technology, and A thearea operated.

I See S. Jegatheesan. Land Tenure ini thles Miutdai Irrigeitionz Scheme (Alor Setar:Muda Agricultural Development Authority, June 1976).

756 Economic Developmncnt cand Culltuirzal Chainge

While variable inputs other than labor are important in the pro-duction function, the principal focus here is on labor because most ofthe real cost of other inputs does not influence the changing pattern ofnet income. Water, for instance, is a critical input, but in the Muda areafarmers pay only nominal water charges (a flat charge per acre, re-gardless of water volume used), which reflects a large public subsidy.Fertilizer is also an important input, but as shown below, its level ofuse per cropped acre did not change during the period of analysis. Norwas ihere significant change in its price. Finally, tractor cultivationservices became increasingly important during the period. Althoughthis input is not incorporated in equation (1), it is included in theanalysis below.

The impact of new agricultural technology op farm income andincome distribution is a function of both the character of the technol-ogy itself and its interaction with the economic and social environmentinto which it is introduced. In this context it is critical to note thatMalaysian rice policy views the Muda Project primarily as a means forimport substitution rather than supply expansion. In other words, theproject's output has no impact on domestic rice prices, and farmersface a price-elastic demand curve.4 Neoclassical economic theory pre-dicts that the introduction of irrigation and high-yielding varieties willhave a stronger and more positive impact on factor prices under theseconditions than under conditions of inelastic demand. The medium-runfactor market adjustment to the Muda Project can be viewed as atwo-stage process. First, the introduction of irrigation water in theoff-season represents an outward shift in the supply curve of land. Theconcomitant introduction of quick-maturing, high-yielding rice vari-eties represents a strongly land-augmenting technical change. Second,this land and output expansion occurring within an elastic-demand en-vironment generates a large economic rent which a competitive marketprocess will capitalize into factor prices, with the largest factor priceincreases occurring for the factors in least elastic supply. Despite theincrease in the total effective supply of land in the Muda area, itssupply is still N-ry inelastic with respect to price. Two things, however,have apparentu, dampened the tendency for the land rental market tocapitalize the bulk of the economic rent generated by the project. Oneis the fact that, compared with mnaay developing countries, agriculturallabor in the Muda area is in scarce supply, so that in the face ofincreasing demand for labor, wage rates have risen rapidly, thus cap-turing for labor an important portion of the economic rent generated bythe project. Second, the land rental market in the Muda area represents

4 Richard H. Gl(hdmain. "Staple Food Self-SuLfficiency and the Distributive Impact ofMalaysian Rice Policy," FOocd Research Institute Studies, no. 3 (1975), pp. 263-78.

Richard H. Goldman and Lyn Squire 757

an important deviation from the competitive model as a result of itsbeing dominated by intra-kin transactions. The apparent impact of thison-farm income is discussed below.

In Section II we focus exclusively on the first term on the right-hand side of equation (2); that is, we investigate the impact of a changein technology, t (the principle sources of which are irrigation and newseed varieties), on output and on labor use, regardless of the latter'ssource of origin. Because the labor market in the Muda region ap-proximates the competitive model, changes in the demand for, andsupply of, labor induced by the new technology influence agriculturalwage rates. For our microeconomic analysis, therefore, it is necessaryto investigate not only the immediate impact on fl* of a change intechnology but also the indirect effect through the labor market andthrough technical substitution of a labor-saving nature.

The second term on the right-hand side of equation (2), thehired/family labor input relationship, is examined in Section III. Therise in the wage rate noted above may be viewed as the reflection of theincreased returns to labor use in paddy production. It can be expected,therefore, that agricultural households will switch from off-farm em-ployment or leisure activities to paddy production. On the other hand,increased farm profits may allow agricultural households to increasetheir allocation of time to leisure activities. The outcome of these con-flicting tendencies is reviewed in Section III. Whereas profit per unit ofarea is assumed to remain constant as the area operated increases, ourdata indicate that the amount of family labor allocated to paddy pro-duction per working member of the family decreases as the number ofworking members increases. Accordingly, the labor supply function wehave in mind may be written as

s = s(u, 11:r, N) , (3)

where N is the number of working family members.An examination of equations (2) and (3) indicates that the net

income derived from the new irrigation facilities will vary amonghouseholds according to the size of their operational holding and thenumber of working family members. While it is clear that net incomewill increase as the area operated increases, given the observed re-lationship between family labor supply and number of working familymembers, it is less clear whether net income will increase as thenumber of workers increases. To resolve this issue, households arecategorized by area operated and number of working family membersin Section IV, and an analysis of changes in the distribution of both netfarm income and net farm income per family worker is undertaken.

758 Economic Development and Cultural Change

II. Technical Change, Relative Prices, and Factor Use in PaddyProduction

In this section we examine some of the more important changes infactor use associated with paddy production. Between 1969 and 1973the farm management environment changed dramatically in the MudaProject area, as shown in tables I and 2. The large increase in wateravailability also stimulated a rapid changeover to new seed varieties,which resulted in increased paddy yields in both seasons. These vari-eties were adopted as much for their quick-maturing characteristics(thus facilitating two crops) as for their higher-yield potential. In addi-tion to this technical change, a substantial change in relative factorprices occurred betwec-i the two periods. The most remarkable featureof the factor price time series shown in table 2 is the dramatic increasein planting and harvesting wages relative to other factor prices, estatewages, and the consumer price index. By 1973, planting and harvestingwages relative to the farm pL;udy price had risen 60% and 39%, re-spectively, since 1970. By 1975, this relationship had modified consid-erably as paddy prices increased in response to world market con-ditions. In this analysis, however, we rely primarily on factor-use dataassociated with the period prior to the large increase in paddy prices,thus controlling for that source of derived demand impact on factormarkets.

Although an analysis of the Muda Project per se must treat thechange in relative factor prices as largely endogenous because of theproject's large regional impact, we are concerned here with analyzingfarm-level response.5 The following discussion, therefore, takes as

TABLE 2

INPUT AND OUTPUT PRIC( INDICES, MUDA PROJECT AREA, MAI.AYSIA

Malaysian RubberCPI Land Estate

Planting Harvest (Rice Tractor Rent/ WageWages Wages Excluded) Hire Crop Rates*

1970 ......... 100 100 100 100 100 ioo1971 ...... ...... 102 ... ... 97

1972 ......... ... ... 105 ... ...

1973 ......... 196 171 115 103 75 107

1974 ......... ... ... 132 ... ...1975 ......... 212 174 138 144 75 111

1976 ......... 245 201 140t 138 94 ...

Field maintenance workers.January through April.

For further discussion of factor price formation, see Richard H. Goldman and LynSquire, "Technical Change, Labor Use and Income Distribution in the Muda IrrigationProject" (Development Discussion Paper no. 35, Harvard University, Harvard Institutefor International Development, January 1978).

Richard H. Goldman and Lyn Squire 759

given the change in relative prices as well as the technical changeembodied in the new seed varieties. A cross-sectional productionfunction analysis shows that, on average, Muda farmers utilize labor ata level close to that consistent with profit maximization.6 We feel itappropriate, therefore, to discuss the response of farm operators tochanges in the economic environment in terms of choices made at themargin.

A compar-ison of preproject and postproject labor utilization on aper crop basis and broken down by cultivation activity is presented intable 3. It is clear that labor use has less than doubled despite thedoubling of cropping intensity and a substantial increase in yield percrop between the pre- and postproject periods. In addition, a compari-son of the two postproject surveys reveals a substantial difference inlabor use between them. Throughout most of the dJiscussion we will becomparing the preproject survey with the 1973 FAO/IBRD survey be-cause we believe the latter to contain the most representative post-projeci data,7 The re asons for the disparity between the two post-project surveys are important, however, and will be discussed below inthe context of each cultivation activity.

A comparison of the preproject survey with the FAO/IBRD post-project data shows only a 92% increase in annual paddy labor usedespite two plantings and a 3517 increase in yield per crop between thetwo samples.8 Thus a large increase in annual labor use coincides witha reduction in the per crop labor/land ratio and an even greater declinein labor input per unit of output. The most important influence on thelabor intensity of output is the nature of yield-increasing technicalchange. In addition, four processes offer potential explanation for thelower labor/land ratio: (ai) The production function associated with theadditional crop may interact with that of the first crop to effecteconomies in factor use, (1) the increase in wages relative to other

6 See Howard N. Barnum and Lyn Squire, 'Technology and Relative EconomicEfficiency," O.x,trlbr Economic Papers 30, no. 2 (July 1978): h3l-98,

7 The data for both postproject surveys were collected by weekly interviewsthroughout an entire year. However, the FAO/IBRD sample size is much larger and isthe only sample drawn in a r igorous, scientific fashion, The subset of data we use fromthe FAo'IBRD sample contains a substantial underrepresentation of low-yielding, acid-soil farms, since we eliminated them all. On the other hand, the farm management studycontains a substantial overrepresentation of such farms. As a result, the crop yield in theFAO/IBRD sample is somewhat above the 1973 Muda area yield and that fiom the farmmranagement study somewhat below. The FAO/IBRD yield is closer to the post-1973Muda area yields than the farm management study yields. As explained in the text, laborutilization per unit area is an important function of yield.

8 The reported average annual project-area yield increased by /7'~ over the period.This figure, however, includes the production on the remaining single-crop farms, whichon average have poorer water control and soil quality tha;a the double-cropping farms. Inaddition, our samples underrepresent the influence of lower prodLIctivity acid-soil farmsin the double-cropping group. On balance our results probably contain a moderate over-statement of the project's true impact.

TABLE 3

rOTAL PAID LABOR INPUT PER ACRF FER CROP (8-hour Man-Days)

PREPROJEC T POSTPROJFCT

Farm Economic Doering's Farm FAO'IBRD Farm ManagementSurvey 1966 Survey 1969 Study 1973 Study 1974.75 CHANGF IN LABOR

(N = 2,476)* (N = 87), (N = 534) (N = 100)§ INPuT/ACRE (%)

Average farm size (acres) ..................... 4.1 4.5 4.0 4.0 .-. .

Farms using tractors ((4) ............. 32 93.4 ... 99

Labor input (man-days):Nursery and land preparation ....... ... 11.8 6.1 5.4 -49

Transplanting .............................. 8.7 6.6 6.1 -24

Weeding, pest control, fertilizer appli-cation ........................... ... 8.0# 7.6 2.1 -5

Harvest cutting .............................. ... 10.0 8.0 ...

Threshing and field transport ........ ... 8.0 s 5.9Harvest, threshing, drying, winnow-

ing ............................. ... 13.1 18.0 15.2 37

Total man-days/acre ................. ... 41.6 38.3 28.9 -8

Malaysia, Ministry of Agriculture and Cooperatives, Farm Econoinic Sireyl oftf 1 M21udaI River Project (Kuala Lumpur, 1966).

Raw data from agro-economic survey carried out by Otto Doering, 1969-70 (see Otto Doering, "Data Report of the 1970 Muda Agro-Economic

Survey,'" mimeographed {New York: Cornell University, August 1972] for a summary).FAOIIBRD Muda Survey data.

§ Muda Agricultural Development Authority, "Farm Management Report," pt. I (Alor Setar, 1976). d

Comparison of 1969 and 1973 studies.#Excludes time spent applying fertilizer.

Includes drying and winnowing.

Richard H. Goldman and Lyn Squire 761

factor prices may induLce factor substitution, (c) the time constraints oncultivation imposed by the double-cropping regime may increase thenet returns to labor-saving technology, and (dl) an exogenous introduc-tion of profitable labor--saving technology may have taken place duringthe period under investigation.

We shall explore the evidence supporting one or the other of theseexplanations by examining each component of the production pro-cess. 9

Since the introduction of double-cropping, there has been a dropof about 507c in land and nurserv preparation labor intensity. Thesimple adoption of mechanized land preparation cannot explain thischange since tractors were widely utilized primarily on a custom-hirebasis prior to double-cropping and were employed by 93c/ of the pre-project sample. However, the ietntelsitv' of tractor use in land prepara-tion has increased substantially since 1970. Prior to double-cropping,farmers, while working in standing water, used a long-handled scythe,called a t(ij(ik, to shear off old paddy stalks at the soil's level. Thisarduous task was followed by a tractor making a single rotovating passover the field. Sometimes this was followed by a buffalo-drawn plouigh,after which chunks of marine clay would break down slowly in thestanding water prior to planting.

By .976 the use of the tcji lk in the Muda area had virtually dis-appeared. '1 There has also been a reduction in the use of buffalo forploughing. Instead, it is customary throughout the area to substitute anadditional tractor pass in place of the ta,jaik and buffalo. The eliminationof the tujal;k operation is the most important source of labor saving. Theincrease in wage rates relative to tractor hire costs probably explainsan important part of this substitution. In addition, the time constraintsof the new double-cropping regime preclude the time-intensive tcljakoperation and eliminate the need for letting the chunky marine claybreak down in standing water.

A fall of about 24% in transplanting labor intensity is shown intable 3. Since double-cropping there has been no mechanization orother changes in technique associated with this operation. The 1975Muda farm management and agronomic suLrvey showed a very low riceplant density on Muda farms. In addition, research plots on farmers'fields show that large gainis in physical productivity are possible as

" Therc is a filth possible explanation: Difrerences in average larm size between thevarious suiveys might accoLint for the changes in labor intensity. We have controlled forthis by using surme)-c with similar average farm sizes. There is no evidence from theMuda area to suiggest an increase or decrease in average fairm size during the periodunder investigation hiere.

" Numerous interviews with farmers in 1976 produced no one who still e-ig;ged inthe task and only a l'ew who were aware of instances of its continued use. All inter-viewees claimed they practiced it until the introduction of double-cropping.

762 Economic Development and Clultu-ral Change

plant population is increased beyond the level of current farm practice.Evidently Muda farmers operate at a region on their production func-tion where the level of labor wise and yields may be quite sensitive torelative costs of planting labor. The observed decline in planting laborinput between the preproject and postproject period may reflect a man-agement decision to substitute land for labor in this activity as laborcosts have risen.

The data are ambiguous concerning a decline in labor used forweeding and pest control, since there is a large discrepancy betweenthe postproject surveys. " Most sources of farm management informa-tion show a very low use of herbicides by Muda farmers. However, ourcasual observation and our discussions with project personnel suggestno serious weed problem. There may be technical economies resultingfrom interaction between the two seasonal production processes whichresult in a reduction in weed growth. UJnder the double-cropping re-gime, the larid lies fallow for a very short period and is under waterthroughout most of the year. Reinforcing this effect, new seed varietiesadopted since 1970 produce more shoots and effectively rob weeds ofsunlight. The discrepancy between the postproject surveys suggestsalso the likelihood of errors in data. Weeding and pest control are veryfamily-labor intensive, and reporting about them is subject to bothambiguity in definition and poor recall compared with more systematicand continuous activities such as planting and harvesting.

The large increase in harvesting and threshing labor in table 3 isnot surprising given the sizable increase in tillering and grain yield percrop. At the time of this study, mechanical harvesting and threshingequipment had not been adopted in the Muda area because of the soilconditions and economic factors. In the absence of mechanization, it isdifficult to reduce labor intensity short of doing a less thorough job ofharvesting and threshing. The surveys reveal an almost fixed re-lationship between harvest and threshing labor input and quantity ofpaddy yield. The labor input/output ratio falls by only 10% between thepreproject survey and the postproject FAO/IBRD study, although yieldper crop increased by 35%. This almost fixed relationship also explainsmost of the difference in harvesting and threshing labor input betweenthe postproject surveys. Nevertheless, the relationship need not betechnologically fixed, and some economic substitution may be occur-ring. 1

2

" Weeding labor dominates this category in each survey.12 For example, a recent study of postharvest processing found that unharvested

grain constituted MM.7e of potential harvest yield. This may represent a reduction ingleaning and abandonment of lodged stands, resulting in the realized harvest being lesslabor intensive. In addition, the study found a substantial reduction in grain qualitybecause of the long wait between harvesting and drying. Technical factors can alsoinfluence this relationship. If the postchange composition of paddy yield reflects an

Richard H. Goldman and Lyn Squire 763

In summary, the moderate decline in total labor use per crop com-prises a rather large reduction in labor used in "area-based" activities(land preparation and planting) with an almost compensating increasein labor used in "output-based" activities (harvesting and threshing).Our evidence suggests that area-based labor use reflects the farmers'response to rising wages relative to output price and other factor costs,while oLItput-based labor use reflects the large increase in crop yield inthe face of technically limited opportunities for factor substitution.

If technically induced changes in labor use are netted out, thepercentage change in net labor utilization divided by the percentagechange in the real cost of labor (wage rate divided by output price) is acrude measuire of the arc elasticity of demand for labor with respect tochanges in the relative factor cost of labor.'3 In the absence of charigein real labor costs, we would expect annual labor use per acre toincrease from 41.6 man-days to 92.2 man-days, given the doubling ofcrop intensity and the observed increase in yields.14 The pure technol-ogy embodied in the MuLda Project is labor using even on a per cropbasis. In fact, actual labor used in 1973 was 76.6 man-days. This 17%0c?reduction in labor use compared with a 45% increase in the real wage(wage index divided by paddy price index) suggests an arc elasticity ofdemand for labor of about -0.4.'5

III. Labor Utilization in Double-Cropping HouseholdsThe previous section shows a very large increase in total labor used inpaddy production following the opening of the Muda Irrigation Project.The evidence suggests also that important substitutions of other factorsfor labor were induced by higher relative labor costs in the postprojectperiod. On balance the full impact of the project and its associatedtechnology was suLbstantially labor using. Not all of the income earned

increase in panicle or head size relative to tiller quantity, one would expect the harvest tohave become less labor intensive per unit of output. These data are, admittedly, onlysuggestive. it is important to recognize, however, that for activities such as harvestingand threshing, which account for a large proportion of total labor use, small and seem-ingly obscure substitutions may have a large impact on absolute labor use (see TropicalProducts Institute, "A Study of the Technical and Economic Problem of Off-Season Padifrom Harvesting to Post-milling Storage in the Muda Area of West Malaysia" [March19761).

' This assumes that the elasticity of labor demand with respect to the real cost ofother inputs is low.

14 This estimate is the result of doubling the 1969 labor use figures for land prepara-tion and transplanting and adding them to the 1973 figures for annual labor used inweeding, hlarvesting, and threshing. This reflects the notion that labor used in these latterthree activities in 1973 is the result of technically induced change.

IS By way of comparison, labor demand curves derived from production functionestimates yield high values (1.50) for the wage elasticity of demand. Such estimates,however, are point elasticities, whereas the results reported in the text are elasticitiescalculated over a large change in the wage rate (see Barnum and Squire).

764 Economic Development and Cultural Change

by this labor increment accrued to farm households, however, since

labor from many sources is utilized in Muda area farms. The impact ofthis dimension of the project on farm household incomes, therefore,depends on household labor allocation decisions.

The existence of a highly active labor market enabling familieswith access to little land to earn additional income through wage em-ployment is confirmed in table 4. For example, households with lessthan 2.5 working adults (types A and C, table 4) apply a virtuallyuniform 90-100 days per adult to income-earning activities (excluding"other on-farm work") regardless of farm size.' 6 There is an offsettinginverse relationship between farm size and wage employment inhouseholds with similar work forces. The same pattern holds for largelabor force families (types B and D).

The seasonal distribution of household labor utilization and labormarket participation for an entire calendar year is depicted in table 5.The coefficients of variation in the upper part of the table suggestconsiderable seasonality for total paddy labor input and even greater

TABLE 4

THE ALLOCATION OF FAMILY TIME IN DOUBLE-CROPPING HoUSEHOLDS

(Man-days per Working Adult)

HOUSEHOLD TYPES

A B C D

Area operated (acres) ................ < 3.2 < 3.2 > 3.2 > 3.2Family workers (adults) ............. < 2.5 > 2.5 < 2.5 > 2.5

On-farm paddy work ................. 53 35 65 47Wage employment in paddy sector .... 26 14 13 8Other wage employment and on-farm

work on cash crops ................ 20 17 17 8Other on-farm work* ................. 28 15 28 14

Totalt ......................... 120 81 123 77

SOURCE.-Calculations from 1973 FAO/IBRD Muda Survey.i Other on-farm work includes house repair, farm-buildings repair, and

fishing.t Totals may not add due to rounding.

16 During the weekly visits when data were collected, adult workers were defined ascurrently resident adults aged 15-65, who were neither sick nor otherwise disabled. Sincechild labor was inconsequential in all households, we have not included it in the workforce. Paddy farm area is tantamount to farm size since no other important field crops aregrown, and household gardens are of little importance. Some households do have smallrubber and fruit tree acreage. Mean area operated for each household group is 1.8, 2.1,4.9, and 6.0 acres for household types A, B, C, and D, respectively. For the samesequence of household types, mean number of family working members is 1.9, 3.7, 2.0,and 4.1.

TABLE 5

SEASONALITY, LABOR UTILIZATION, AND LABOR MARKET PARTICIPATION

CoefficientNov. Dec. Jan. Feb. Mar. Apr. May May June July Aug. Sept. Oct. of

15 13 10 7 7 4 2 30 27 25 22 19 17 Variation

Labor Utilization (Man-Hours) per Household

Total paddy labor input .............. 101 112 320 135 88 198 123 71 144 328 252 224 114 .51Hired paddy labor input ............... 18 60 191 78 29 99 36 7 79 190 117 107 33 .75 C/)Family paddy labor input .............. 3 52 129 57 59 99 87 64 65 138 135 117 81 .35 n

Wage employment ................... 30 46 50 37 32 52 36 45 61 69 55 53 34 .26 -

Nonpaddy, nonwage labor use .......... 46 43 32 43 32 27 38 47 44 28 29 30 39 .10 CDTotal family labor use ................ 159 141 211 137 123 178 161 156 170 235 219 200 154 .20

Proportion of Households Participating in the Labor Market

Households hiring in labor ............ .05 .10 .26 .22 .33 .24 .13 .06 .10 .22 .31 .21 .12 .52Households hirinig out labor ............ 46 .50 .32 .37 .21 .27 .40 .63 .53 .24 .16 .26 .39 .38Households hiring in and hiring

out labor ......................... 05 .35 .35 .23 .35 .41 .15 .06 .21 .48 .48 .45 .14 .58Total labor market participation ........ 56 .74 .93 .82 .89 .92 .68 .75 .84 .94 .95 .90 .65 .26

NOTE.-Each period is 4 weeks long and commences with the dates shown.

CN

766 Economic Development and Cuiltural Change

seasonality for hired paddy labor. Total family employment is muchless seasonal, however, with a coefficient of variation of 0.20, suggest-ing that the seasonal nature of paddy farming may impact more onincomes of migrant workers entering the Muda region. Moreover, thereis no 4-week period when total family labor use even approaches po-tential supply, despite the extensive hiring in and hiring out of labor.'7

In addition, the lower part of table 5 shows that on average, during anygiven 4-week period, 81% of Muda farm households participate in thelabor market either as suppliers, demanders, or both. During thecourse of an entire year, every household in our sample (N = 534)participated in the labor market.

In summary, we observe a very active and apparently open labormarket which is reasonably free of seasonal influences and which hasexperienced a large increase in real wages. This market coexists with arelatively low level of labor use per working adult, compared withI"potential supply." Since the existence of this market apparently en-ables families to overcome their limited access to land, thus rationaliz-ing their labor forces, we conclude that the general low level of laboruse is more a result of household preferences than of labor marketconstraints. This low intensity of labor supply, though it bears littlerelationship to farm size, is strongly associated with size of family workforce (see table 4). While we have no explanation for this phenomenon,other than in terms of the structure of preferences, it does play animportant role in the household distribution of per capita gains fromtechnical change described in Section IV.'8

If the household labor allocation patterns described above are in-deed the result of choice, as our evidence suggests, one implication is asubstantial employment of workers from single-cropping householdsfrom both inside and outside the Muda area. The degree of participa-tion in and dependence on the labor market for paddy production forour four household types is portrayed in table 6. Although each house-hold type both hires in and hires out labor, all households except those

1 The "potential labor supply" of the households represented in table 5 is 345man-hours per 4-week period. There is an average 2.4 workers per household. Male!workers are assumed potentially available for 8 hours a day for 24 days. Female workersare assumed potentially available for this type of work for 4 hours a day for 24 days.

18 There is no reason to suspect that an apparently active and integrated labormarket would systematically discriminate against workers from large families. If largerfamilies had greater amounts of per capita unearned income, this might be an explana-tion, but we found no statistical correlation (-0.07). There may be some element of"extended-family" bias in ouIr data, but enumerators were well supervised and carefulnot to designate as potential workers any elderly, sick, or otherwise disabled householdmembers. Econometric estimates of household labor supply curves indicate clearly thatthe structure of preferences is a function of size of family labor force (see Howard N.Barnum and Lyn Squire, "An Econometric Application of the Theory of the Farm-Household," Joiflrc1l o)j Deileloplnent Econtomnic's 6 [1979]: 79-102).

Richard H. Goldman and Lyn Squire 767

with less than 3.2 acres and more than 2.5 family workers hire in morelabor than they hire out. Employing the number of households in eachgroup as weights, 47% of the total labor input into paddy representshired labor. The total amount of paddy labor supplied to the market bydouble-cropping households comprises 14% of total labor required, sothat 33% of the total labor requirement (70% of labor hired) must besupplied by sources other than double-cropping households. The mostimportant of these souirces are single-cropping households in the MudaProject area; rural, landless households in the Muda Project area; andhouseholds supplying migrant labor from outside the project area.

There is some evidence to suggest that the share of own familylabor in total paddy labor use has increased. Our 1973 sample showsown family labor comprises 53% of the total compared with 44% in the1969 preproject sample. Clearly, however, the large increment in laboruse and the higher return to labor discussed in Section II have beendistributed beyond family farm members. Given that annual total laboremployed in paddy farming increased by 35 man-days per acre, themederate decline in the hired labor share nevertheless results in anab3 olute increase of 8.5 days of hired labor per acre.

IV. Change and Distribution of Net Farm Income and Other FactorShares

The foregoing analysis of the Muda labor market, focusing on house-hold labor allocation, on-farm use, and the importance of family rela-tive to hired labor, has revealed some interesting cross-sectional dif-ferences among Muda households of various socioeconomic types, aswell as substantial longitudinal change following the introduction ofdouble-cropping and new seed varieties in the Muda Project area. Eachof these patterns is reflected in changes in net farm income and thedistribution of gains from technical and economic change.

TABLE 6

HoUSEIIOI.D SUPPLY TO MARKFT FOR PADDY LABOR (Man-Days/Family)

HOUSI.HOL.D TYPEs

A B C D

Area operated (acres) ................ < 3.2 < 3.2 > 3.2 > 3.2Family workers (adults) ............. < 2.5 > 2.5 < 2.5 > 2.5

Hired-out family labor ............... 51 55 26 27Hired-in labor ..................... 57 55 173 184Net market demand for paddy labor ... 6 0 147 157

SouRcI.-Calculations from 1973 FAO/IBRD Muda Survey.

768 Economic Dev'e lopinent aind Ciultulral Chia1nge

Change in the absolute level and distribution of family net paddyfarm income is shown in table 7.19 The table shows that family net farmincome has increased almost fivefold in the postproject period. This isnot unexpected, given the doubling in crop intensity, the large increasein yield (average 35%k per crop), and a 23%7c increase in the price ofpaddy.20 The distribution of family net farm income has also changed inthe postproject period. Although the ordinal ranking of family typesremains Linchanged, the range of distribution is reduced as families

TABLE 7

PREPROJECT (1969) AND POSTPROJECT (1973) COMPARISON Ol- ABSOLUTE AND

RELATIvEi. NET FARM INCOME BY HOUSEIHOLD TYPE'

HOUSEHOLD TYiPE

A B C D

Area operated (acres) ................ < 3.2 < 3.2 > 3.2 > 3.2Family workers (adults) .............. < 2.5 > 2.5 < 2.5 > 2.5

Absolute family net farm income (M$):Preproject ........................ 299 362 544 1,232Postproject ....................... 1,672 1,839 3,862 5,083

Relative family net farm income:Preproject ........................ 100 121 182 412Postproject ....................... 100 110 231 304

Absolute family net farm income perfamily worker:

Preproject ........................ 155 99 268 303Postproject ....................... 873 502 1,918 1,250

Relative family net farm income perfamily worker:

Preproject ........................ 157 100 271 . 306Postproject ....................... 174 100 382 249

* Net farm income is total paid output valued at farm-gate price less cost ofhired inputs (primarily hired labor, rented land, tractor and bullock hire, andfertilizer).

"9 The estimates of net farm income presented here are hypothetical in the sensethat, rather than use the observed value figures, we have used observed quantities andprices to arrive at value figures. This reflects our view that the price implied by the valueand quantity figures in the FAO/IBRD survey is too low. The imputed price is M$11.60per picul, whereas the inill-gate price for paddy with 149( moisture constant wasM$17-$19 per picul during the main season and M$23-$24 per picul during the off-season. We have, therefore, usedftirmn-gatc' prices of M$16 for main season and M$22 forthe off-season, which, using each season's share in total output as weights, implies anaverage farm-gate price of M$19 per picul. Our results can, of course, easily be re-computed for alternative price assumptions, but the one adopted here appears to be themost realistic.

20 As noted above, our results can easily be recomputed for alternative price as-sumptions. For example, if it is assumed that the price has not increased at all over theperiod of study, the increase in net farm income is fourfold rather than the fivefoldincrease reported in the text. The distributional implications, however, remain the same.

Richard H. Goldman and Lyn Squire 769

with small farms and work forces gain relative to all but families withsmall work forces and large farms, while families with large farms andwork forces lose relative to all other groups. The data on changes ininput shares shown in table 8 will assist in understanding thesechanges.

In terms of a share of value ol output, table 8 shows that for allfamily types, returns to owned inputs (i.e., net farm income) gain im-pressively relative to hired inputs, with families with small work forcesand large farms (type C) making the largest and those with large laborforces and large farms (type D) the srnallest gain. This pattern is par-tially explained by the large increase in paddy yield per acre achievedby type C farms (51%' per crop, compared with 23%5 for type D, thelowest among the four types). In addition to relative yield performance,factor substitution and the performance of factor and output pricesexplain the absolute and relative gain from technical and pecuniarychange. 2

1

Each group shows a similar fall in the share of land preparation(nonlabor) and chemical input costs. This reflects the increasing sub-stitLItion of lower-cost custom hire tractor services for labor and bul-locks and the more or less unchanged level of fertilizer application percrop between the two periods, despite the large increase in yield. Inaddition to the very weak association between land preparation andchemical inputs and yield increases in the production function, tractorhire and urea prices show a small increase relative to the large increasein paddy prices.22

Although wage rates have increased dramatically, the share ofhired-labor costs in the value of output has dropped considerably, re-flecting both the overall fall in labor intensity discussed earlier and thesubstantial substitution of family for hired labor. These trends havebeen strongest on type C farms and contribute to the superior perfor-mance of net farm income on those farms,

The land rental payment share decreases sharply in the postprojectperiod. This is particularly unusual since the world market and protec-tion have maintained high outpui prices despite the large increase indomestic prodLuction. The fall in relative rental payments is largest for

2 The two samples being compared (i.e., Doering and IFA()IBRD) showed differentareas opelrted for the sa;me family type, with farm size falling somewhat for each groupbetween 1969 and 1973. Since the difference was small and the 1969 sample was drawnunscientifically, we have contiolled for this influence by standardizing the 1969 figures interms ol the 1973 farm sizes. Thus the comparisons reported here abstract from any realfarm size diiThrence, that may have taken place between or within groups and focus oninfluences that Ase are confident exist. (See table 3 for furthel evidence on farm size overtime.) The difference between the two samples in work-foice size was extremely small,and sse have not controlled for it.

A After 1973 as import prices of fertilizer increased. a subsidy was introduced toprotect rice farmers.

0

TABLE 8

CHANGE (9e) IN VALUE OF INPUTS AS A SHARE OF VALUE OF OUTPUT BY HOUSEHOLD TYPE: 1969-73*

HOUSEHOLD TYPE

A B C D

Area operated (acres) ............ < 3.2 < 3.2 > 3.2 > 3.2Family workers (adults) ............. < 2.5 > 2.5 < 2.5 > 2.5

Land preparation ............. -6.6 (1.4) -5.0 (1.4) -5.2 (1.3) -2.9 (1.6)

Fertilizer, insecticide, herbicide -4.7 (3.1) -5.9 (3.2) -5.1 (3.2) -3.4 (3.3)

Hired labor ................. -4.5 (12.0) -5.7 (10.9) -10.2 (15.6) -5.4 (13.8)Land rental payments ............ -8.6 (10.2) -4.8 (7.0) -12.8 (9.6) -7.8 (7.3)Owned inputs ................ 24.4 (23.3) 21.4 (77.5) 33.3 (70.3) 19.5 (74.0)

* Numbers in parentheses are 1973 shares.

Richard H. Goldman and Lyn Squire 771

types A and C, the two types most dependent on rented land in both thepreproject and postproject periods. This phenomenon is more a resultof the relatively modest increase in annual rental rates (an absolutedecrease on a per crop basis) following double-cropping than of a re-duction in the quantity of rented land. (Relative price changes areshown in table 2.) The failure of land rental rates to rise sufficiently toabsorb all of the economic rent generated by the Muda Project is notsurprising, given the scarcity situation in the labor market. However,institutional factors may be even more important, for our data suggestthat, at least during the time period observed, the returns to operatedland may be substantially greater than average rental rates. When fam-ily labor time is valued at the market wage rate and subtracted frorn netfarm income, the residual should be a reasonably close proxy to thereturns to land. In the case of the four family classifications describedin table 7, this residual, when standardized on a per acre basis, isbetween 2.0 and 2.4 times larger than the average land rental rate.

The Muda area is characterized by an unusually large incidence oftenancy relationships between kin. *Various studies have shown be-tween 52%k and 84% of tenancy arrangements are between kin. Thesearrangements serve to organize land. the ownership of which is highlyfragmented by Islamic inheritance laws, into rational operationalholdings. In this situation rental terms may be a mechanism faJiDitatingintrafamily transfers rather than the capitalization of land values.Although information is very much lacking on this subject, the situa-tion suggests that important noneconomic factors may partially governthe terms of rental agreements, thus contributing to the fall in the rentalpayment share shown in table 8.23

In summary, factor substitution and pecuiniary influences as-sociated with land preparation and chemical inputs contribute aboutequally to the increased share of net farm income for each group. Therelative gains of the two small labor force family groups shown in table7 result from their superior crop performance compared particularlywith the large labor force, large farm group; the relatively greater im-portance to both groups of pecuniary influences on land rent; and typeC's relatively greater substitution of other factors for labor and offamily for hired labor.

The family-wise distribution of net farm income per family workeris also shown in table 7. The influence of adult family size substantially

23 See Jegatheesan (n. 3 above); H. Kenzo, "The Land Tenure System of MalayPadi Farmers-a Case Study of Kampung Sungei Bujor in the State of Kedah," Devel-oping Economies 10 (March 1972): 45-73; M. Kuchiba and Y. Tsubouchi, "Paddy Farm-ing and Social Structure in a Malay Village: A Social Anthropological Study of a Com-munity in Kedah," Developing Economies 5 (September 1967): 463-85; and Muda Ag-ricultural Development Authority and University Sains Malaysia, Land Tenure Survey,Final Report (Penang, 1973).

772 Econonici D veloplnie antid Cuilturaril Chalnige

modifies the distributional patterns.2 4 Contrary to the unadjustedfamily-income pattern, the group distribution of per capita family in-come becomes more skewed in the postproject period. In addition, theordinal ranking changes, with type B becoming the poorest family typein both periods and type D giving up its position of wealthiest familytype in the postproject period. These changes result from the low in-tensity of family labor use associated with large labor force families, aphenomenon d;scussed earlier. Although large labor force familieshave larger farms than their small labor force counterparts (comparingtype B with type A and type D with type C), their unexploited laborsupply offsets the farm size advantage. Large labor force families haveabout 67% more family labor force per operated acre than their smalllabor force counterparts, yet type B hires in only 16% less labor peracre than type A and type D ornl' I 1% less than type C. This evidenceis consistent with oLr earlier analysis of labor utilization in large laborforce families, suggesting this pattern is a result of choice rather thanmarket imperfections. 25

Finally, it should be noted that in tables 7 and 8 the value of outputincludes both marketed and home consumed paddy valued at thefarm-gate paddy price, and the net farm income figures are undeflated.Real net farm income, reflecting group-specific adjustment for changesin consumer price levels between the two periods, may have sub-stantially different distributional characteristics. We created group-specific price deflators by combining the rice price index and the na-tional consumer price index (rice excluded) and weighting the formerby the share of home-consumed paddy in total production and the latterby the marketed share. The change in Fisher's ideal price index rangesfrom 20.7%Y to 22.0% across the four groups, with the small farm groupshowing the largest change. Therefore, the real value of net farm in-come is on average 21.5% less than the unadjusted figures in table 8.The distributional characteristics remain virtually unchanged, how-ever, given the small difference among the group-specific deflators.

V. ConclusionsThe Muda Project area, through the provision of irrigation water andadoption of new seed varieties, has experienced dramatic technical

24 The use of full family size results in substantially the same modification.25 We have no information from the preproject period about the allocation of house-

hold labor time to activities other than their own paddy work. Therefore our estimates ofthe change in net farm income may overstate the net change in total family income sincesome of the increase in family labor in on-farm paddy work may have been at the expenseof other income-generating activities rather than of leisure. If we assume that all theincrease in family labor input into paddy in 1973 was fully employed in 1970 at 1970 wagerates, household income would have increased by a factor of 3.6 compared with net farmincome, which increased by a factor oF 4.8. Given limited job opportunities in the off-season prior to the project, the true increase in household income is probably much morecomparable with that of net farm income than with the estimate reported here.

Richard H. Goldman and Lyn Squire 773

change manifested in increased crop intensity and crop yield. For thepreproject and postproject year compared here, paddy production onfarms receiving off-season water and using new varieties increased by170e/. In terms of employment, as shown in Section II, the technologyembodied in the project is labor using. The pure technology effectalone would increase labor input per acre per crop by 11%. Includingthe crop intensity effect, total labor use per acre would increase by122W/. However, in the labor-scarce environment of the Muda region,the demand effect of the new technology has increased wage rates,stimulating substitution of other factors for labor and resulting in arealized postproject labor use 17% less than that expected from theeffect of technology alone.

The net labor-using characteristic of the new technology only par-tially explains the ultimate impact on the level and distribution of netfarm income. Between 1969 and 1973 net farm income grew almostfivefold. This growth might have been even larger had not Muda farmfamilies made intensive use of hired laborers. Although the share offamily labor in value of output grew over the period, there . as also asubstantial increase in hired labor use in the face of an apparentlyabundant supply of family labor (see Sec. III). Although most paddyfarmers in the Muda area were in the bottom 40% of the Malaysianincome distribution prior to the project, they were neverthelesswealthy by comparison with rice farmers in other countries. In 1969 theregion's paddy labor wage rate in rice equivalent was 5.3 kilogramsdaily and had risen to 7.4 kilograms in 1973. The rice-equivalent dailywage oni Java in 1973 was 1.3 kilograms. The wealth effect of theproject has likely induced a fairly high demand for leisure at thZ mar-gin. This may explain the low intensity of labor Lise by farm families.On the other hand, wage rates have risen rapidly, and so have the netreturns to using family labor. This may explain the increase in the shareof family labor in total output.

Our evidence shows that the net impact of the Muda Project hasbeen to reduce the degree of income inequality among farm house-holds. The failure of the land rental market to capitalize fully the eco-nomic rent produced by the new technology is a major factor in theimprovement in equity. Even when hired and family labor are valued atmarket wages, the value of net farm income left undistributed is morethan twice the average land rental rate. Our evidence suggests thatobserved market rental rates do not reflect the equilibrium describedby economic theory, and that given the large incidence of lease ar-rangemnents among kin, rentals are a mechanism facilitating intrafamilytransfers as well as the capitalization of value generated by technicalchange.

There is a growing literature suggesting that Malaysia is not uniquein having important institutional features in factor markets play an

774 Economic Development ansd Culturtal Change

important role in determining the distribution of benefits from newagricultural technology. Kikuchi and Hayami report that in many areasof the Philippines land reform legislation has succeeded in fixing therental share tenants pay to legal owners. As a consequence, tenantswho become de facto owners often sublet their plots to others, charginga rent which apparently capitalizes most of the economic rent gener-ated by technical change. In parts of Java, the introduction of high-yield rice varieties, combined with a tradition in the labor market re-quiring farmers to pay a fixed share of the harvest to landless laborers,has provided an incentive to farmers to sell their crop to nonlocalbuyers before hiarvest. The outsiders, feeling less bound by local cus-tom, hire a small team of workers to car-ry out the harvest. The resultapparently is a lower share of the technology-generated benefits ac-cruing to labor than had the traditional practice prevailed.26

There are additional institutional features of the Muda Project areawhich have influenced the distribution of gains. The public de}ivery ofirrigation water at highly subsidized rates and adequate provision ofcredit has resulted in a rapid and egalitarian use of profitable newtechnology by farms of all sizes. The existence of a well-establishedmarket in tractor hire services has fractionalized "indivisible" capitaland almost surely contributed to the apparently neutral impact of thenew technology on changes in farm size. Finally, household net farmincome per capita bears a surprisingly inverse relationship to the size offamily labor force. While we have identified this relationship empiri-cally, we are unclear about why it should exist, since our evidencesupports the hypothesis that no important labor market imperfectionsexist which would differently limit market access to workers from largelabor force families.

In the early days of the Green Revolution it was fashionable togeneralize broadly about the social and economic impact of the newagricultural technology. Some of the more grave predictions have notbeen borne out in Asia, and many today agree that the positive impacthas been more broadly spread among farms of all sizes and, to anextent, among agricultural workers than many originally expected. 27 Itis also clear that in many regions the production potential embodied inthe new technology has not been fulfilled and that social dislocationassociated with the technology has left the benefits concentrated in thehands of a relative few.

26 William L. Collier et al., "Agricultural Technology and Institutional Change inJava," Food Research Inistititte Stutdies 13, no. 2 (March 1974): 169-94; and MasaoKikuchi et al., "Polarisation of a Laguna Village" (IRRI Agricultural Economics Paper78-01, 1978).

27 See, e.g., 1. J. Singh, "Small Farmers and the Landless in South Asia" (WorldBank Staff Working Paper no. 320, Washington, D.C., 1979).

Richard H. Goldman and Lyn Squire 775

We have reported here an apparent Green Revolution successstory. Much of this success is due to the price policy environmentsurrounding the Muda Project and the special characteristics of thelabor and land market (see Sec. 1). From today's perspective it isinteresting to note that while the results of our analysis (which termi-nated in 1974) are generally still valid, there are important exceptions.First, since 1977, there has been a substantial increase in mechanizedharvesting and threshing, a development which will have eliminatedmany jobs for landless workers. Second, general inflation in the Malay-sian economy has reduced the real income gains generated by theproject. This has been exacerbated by two crop seasons since 1977when drought left the project reservoirs with insufficient water foroff-season water. Unrest among farmers has grown to the extent that inearly 1980 violent demonstrations occurred in the area, involving farm-ers demanding an increase in rice prices, which are already supportedabove the world price level.

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