When analysing urban-rural relations with regard to agriculture, one sees that functionally there can be no strict separation between rural and urban. The same is true for land use. Applied to the reality of developing countries, the von Thünen location theory, developed some 150 years ago for urban-rural relations in Northern Germany, suggests a gradient of agricultural systems relative to their distance from urban centres (von Thünen 1826). In economic terms, von Thünen-like models suggest that land use patterns and the market price of land are established by relative rental gradients for agricultural and non-agricultural land use. Under the conditions of a rather unbalanced urban expansion, as experienced in many Asian cities, the conversion of land into different uses does not proceed in concentric circles around the market town as the original theoretical model suggests. Consequently, location driven changes in rural agricultural systems, periurban and even urban agricultural systems emerge among the gradients in the periphery, the wedges and the corridors of urban settlements (UNDP 1986).
As pointed out by de Zeeuw et al. (2000), agriculture in urban agglomerations comprises various farming systems. These systems range from subsistence production and processing at the household level to fully commercialized agribusinesses comprised of specialized production, processing and distribution units. These agricultural systems exist within heterogeneous resource utilization situations, e.g. under scarce as well as abundant land and/or water resource conditions. Urban agriculture normally has a niche function in terms of time (transitory), space (interstitial) as well as specific social (e.g. women and low income groups) and economic (e.g. financial crisis, food shortage) conditions. It exists under a range of policy environments that can be prohibitive or supportive to its existence and development. Contrary to the views of many urban planners and development experts, participants at a workshop in Havana, Cuba (Bakker et al. 2000) concluded that urban agriculture has to be seen as a permanent component of the urban system although some forms are based on temporal use of vacant lands only. From the perspective of urban food security, nutrition and health, urban agriculture can potentially make a significant contribution (Ruel et al. 1998). As women often have the responsibility for food procurement for the household there is a strong gender dimension. Furthermore, provisions made for agriculture in urban areas in terms of land, other resources, processing facilities and institutions can be considered as a kind of risk premium that city authorities pay as part of an insurance strategy to avoid food riots and other social disruptions (Waibel 2000). Considering the social consequences of the financial crisis in Asia (Knowles et al. 1999) the social costs of a pro-active city food security strategy are likely to be lower than relying on a future scenario of perfect market conditions and government subsidies. Empirical evidence for urban food production as part of a coping strategy to deal with the consequences of the financial crisis can be found in Indonesia (Ibid: p. 49). There is also a need for urban processing facilities because demand for food increasingly means demand for processed food.
As product prices increase and factor prices decrease with proximity to urban markets, the availability of empty land close to urban settlements and urban centres raises the marginal value product of labour and hence attracts migration to such places. However, urbanization can increase the cost of agricultural production near residential and manufacturing areas in a number of ways. First, regulatory measures are often more effectively implemented, enforcing farmers to internalize some of the negative externalities generated, e.g. by the use of chemical inputs. Second, user costs of land may increase through property taxes. Third, farmers costs can increase due to vandalism and poaching in the sub-urban fringe (Bhadra and Brandao 1993). Fourth, agricultural production decisions can become distorted due to land speculation. Farmers may delay complementary investments, e.g. in machinery or drainage because they plan to sell their land and move to the city, as observed in Dhaka (UN 1987). By the same token, farmers have no incentive to apply resource-conserving good agricultural practises. The net effects of urbanization on agricultural land use also depend on the type of agricultural commodity produced. For example, vegetable production may benefit from urbanization while livestock production may be adversely affected.
The application of location theory to urban areas has shown that urbanization does not make agriculture disappear. City administrators and planners need to take into account the fact that agricultural production occurs in an urban-rural continuum rather than in isolated, far away rural areas. It is therefore important that effective and efficient policies are designed that exploit complementary forces between urban development and agriculture in the context of economic and social welfare. Within this context decision-makers need to be aware that the traditional producer-consumer relationship has been substituted by a more diversified structure that includes collectors, transporters, wholesalers and retailers.