Chapter 8 The agricultural transformation From both historical and contemporary cross section perspectives the agricultural transformation seems to evolve through at least four phases that are roughly definable. The process starts when agricultural productivity per worker rises. This increased productivity creates a surplus which in the second phase can be tapped directly through taxation and factor flows or indirectly through government intervention into the rural urban terms of trade. This surplus can be utilized to develop the nonagricultural sector and this phase has been the focus of most dual economy models of development. For resources to flow out of agriculture rural factor and product markets must become better integrated with those in the rest of the economy. The progressive integration of the agricultural sector into the macro economy via improved infrastructure and market equilibrium linkages represents a third phase in agricultural development. When this phase is successful the fourth phase is barely noticeable; the role of agriculture in industrialized economies is little different from the rote of the steel housing or insurance sectors. But when the integration is not successfully accomplishedand most countries have found it extremely difficult for political reasonsgovernments encounter serious problems of resource allocation and even problems beyond their borders because of pervasive attempts by high income countries to protect their farmers from foreign competition.