Revival of Agriculture Sector

• Asif Maqbool
• Muhammad Rasheed

Agriculture today presents us with a problem that may soon appear in the non-agricultural sectors as well: a growing gap between productivity and demand. Demand for agricultural products is fairly stable, as there are limits to the number of uses to which agricultural products can be put. Competition between farmers to satisfy this demand leads to increased efficiency, productivity and hence, to higher production. Higher production and stagnating demand combine to depress product prices, forcing farmers to produce even more efficiently. As a result, there is more oversupply, and prices drop even further. The less efficient producers are forced out of business, those remaining keep running the competitive rat race until they fall out of the treadmill themselves.

The result of this process is that today, in developed countries, only a few percent of the work force is still employed in agriculture. In the U.S. and Northern Europe farmers make up only some 2% of the working population - compared to close to 50% a century or so ago. Even so, many economists consider the agricultural sector as inefficient. Especially in Europe and Japan there are still large numbers of relatively small farmers who, according to economic criteria, should have gone out of business long ago. Protection from imports, subsidies and artificially high prices help them survive. If market forces were given free reign, most of this group would be forced out of business in a matter of years. In modern agriculture, productivity has been raised to such levels that in principle, only 1% of the working population can satisfy all demand.

With efficiency and production, the costs of farm support measures have also increased. A significant part is subsequently dumped on world markets at prices at which no non-subsidised producer can compete. The result is economic disaster for producers from countries that do not protect their farmers. Particularly hard hit are small farmers in poor countries who do not have the high quality land nor the access to capital and technology to switch to more lucrative crops. Those who do manage to produce exportable crops face the protectionism of the same nations doing the dumping.

 Officially these costly and damaging support programs were created and maintained to raise the incomes of farmers whose earnings stay behind those of the rest of society. But do they really do what they are supposed to do? In the early 1990s, 80% of the European Community subsidies went to the wealthiest 20% of farmers. In the U.S., this figure was about 70% - with the richest 1% of farmers receiving close to 30%: about as much as the bottom 80%. This is less surprising than it may seem: after all, one does not have to be an economist to figure out that the biggest beneficiaries of price supports and programs to keep land out of production are those who produce the most and have the most land. Those are large farmers and in the US, where in some fields of agricultural production family farming has all but disappeared, agro-industrial corporations. Thus, the $75 billion the European Community and the US government dish out each year mostly benefit the rich. Considering this skewed distribution of benefits, it is hardly surprising that in spite of all the billions spent, the income situation of smaller farmers continues to deteriorate.

Issues

There are many differences between agriculture in rich and poor countries, but there is also a remarkable resemblance: subsidies go to those who need it the least. Moreover they are, directly or indirectly, paid for by those who can least afford it. As in the rich nations, governments of almost all developing countries have, since the sixties, heaped billions of dollars of subsidies on the agricultural sector. Most of those funds have gone to the commercial farming sector, meaning medium and especially large scale farmers. While the large majority of small farmers in developing countries have to live off small plots without recourse to credit, inputs, technical assistance or irrigation, commercial farmers have benefited from state financed-irrigation projects, infra-structural development and subsidies on credit and inputs. Irrigation water, generated through projects that have contributed significantly to getting the countries involved into debt, is provided to beneficiaries free of cost or for a symbolic fee. Subsidies on farm inputs and their consequent excessive use lead to more waste, costs to the public and damage to the environment.
 The drawback hampering the development of agriculture is the distortion of world market prices by the protectionism, subsidies and dumping practices of the rich countries. Many poor nations have large areas with climates and soils favourable for agricultural production. They could produce much more food than would be needed to feed their populations, at internationally competitive prices. But as we've already seen, export possibilities are severely limited because of the protection the rich countries provide for their own producers. Moreover, the rich countries’ practice to dump their surplus production on world markets depresses prices and thus, the possibilities for poor countries to earn much needed foreign exchange.

One important factor inhibiting poor countries from developing their agricultural potential is the skewed distribution of land. Although in some poor countries there is simply not enough arable land to go around, in most the problem is not so much the quantity and quality of land as its distribution. Small groups of large, often extremely wealthy land owners possess most or all of the high quality arable land. They usually live in the cities, where they have business interests in the industrial and service sectors as well, and occupy high positions in government. Often, agriculture is not even their main source of income. Much of their land is not or only very extensively used, and maintained simply as an investment.

In contrast, millions of small farmers have to make a living on small plots of marginal land, often on hill or mountain sides vulnerable to erosion. Without fertile land, capital, technical support and adequate marketing channels they are limited to growing their traditional food crops. Due to the competition from grains and other foodstuffs dumped by the rich countries, prices for their products are low. Production decreases as diminishing returns make it virtually impossible to invest in maintaining soil fertility. If the decrease in farm income is such that survival is impossible, these small farmers sell their land or simply abandon it, joining the constant stream of people flowing to the cities in search of better opportunities.

In developed countries the agriculture sector is overly productive, energy inefficient, and mostly, harmful to the environment. Under pressure from the farm lobby, dominated by rich farmers  and large corporations, governments maintain artificially high prices and protect their internal markets. Part of the resulting excess production is dumped on world markets, handicapping already disadvantaged producers elsewhere even further. In name, these enormously costly programs serve to keep farm incomes at acceptable levels. In practice, most of the benefits end up with already rich farmers and agri-business, whereas smaller farmers remain poor and continue to be pushed out of business.  In poor countries, small elites own the best agricultural land and command the bulk of other scarce resources, whereas a large proportion of small farm families have to make a living on marginal soils with minimal resources and little or no support. Prices for the foodstuffs they produce drop precipitously because of the dumping practices of rich countries, whereas export possibilities are limited by the import restrictions of same. With low prices, poor land and lack of access to such key facilities as inputs, credit, marketing, adequate technical assistance and transport, small farmers are hard put to remain on the land.

As for the environment, modern industrial agriculture causes large scale pollution, waste quantities of non-renewable energy and water, and destroys soils. Moreover, it becomes increasingly doubtful that the impressive gains in productivity that up till now were used to justify these drawbacks can be sustained. Because of the problems of pest resistance and the loss of genetic material, society's almost total dependence on industrial agriculture puts humanity at considerable risk. Simultaneously, small scale agriculture in marginal conditions, especially in mountainous areas, threatens the global resource base through huge losses of fertile top soil and the destruction of natural and man-made water management systems.

Policy Options

The above described problems make it obvious that, from a social, economic and ecological perspective, a new approach to agriculture is needed. From a social point of view, the main characteristic of this new approach should be to allow the large majority of today’s agricultural producers to (continue to) make a decent living through farming and complementary land management activities. From an economic point of view, such farming should be sufficiently productive and efficient to satisfy both local needs and the demand of a growing non-agricultural population, guaranteeing acceptable agricultural incomes as well as affordable prices for consumers. From an ecological point of view, this new approach should aim at creating ecologically sustainable agricultural systems, adapted to local climates, ecosystems, soils and the availability of water. All three perspectives call for a large scale reorientation of most of today’s agricultural activity.

 The starting point for a more ecologically oriented agriculture is the development and application of new, integrated production systems. Rather than aiming at maximising the production of a single crop with high inputs of energy and agro-chemicals, such systems should make optimal, sustainable use of the available natural resources. Integrating crop, livestock (including fish) and tree production can minimise the loss of natural nutrients and pollution. Instead of relying almost exclusively on using chemical fertilisers to replenish soils, nutrients taken out of the system should be recycled through organic waste such as crop residues, livestock manure and compost from urban refuse, and from the use of green manure and other nitrogen-binding crops. Instead of the widespread use of chemical pesticides for the elimination of pests, diseases and weeds, plant protection should be based to the extent possible on biological measures, including the use of resistant crop varieties, natural enemies of pests, crop rotation and intercropping.
 To foster the required changes, a combination of positive and negative incentives should be given to producers. Positive incentives could consist, especially initially, of technical assistance free of charge to farmers willing to experiment with and convert to sustainable farming. In some cases, subsidies might be required for environment-friendly inputs and investments in the conversion to more sustainable forms of agriculture. The latter would be feasible for, for example, the cost of terracing or other works to limit or eliminate soil erosion, or for such technology as drip irrigation equipment.

 Negative incentives should take the form of rising prices for fertilizer, pesticides and other non-sustainable or scarce inputs, including water. That would provide farmers with the opportunity to change in a gradual way to more sustainable forms of agriculture. The height of the levies on harmful inputs should be related to their toxicity or otherwise damaging effects. This would encourage farmers both to use more environment friendly inputs, and to use those harmful inputs for which no substitutes are available as economically as possible. Contaminating products for which less harmful alternatives are or would become available should be phased out altogether, through bans on their sale and production.

A radically different approach to the techniques and management of agricultural production should be paired with new policy measures, aimed at fostering small and medium sized family farms. Such measures should avoid, however, the large scale squandering of funds and resources on the production of unneeded commodities that characterises today’s agricultural support systems. This can be achieved by combining two principles that at first sight, appear to be radically opposed, even mutually exclusive: agricultural planning and a return to free market principles. The resulting economic efficiency should be linked to the even more important aims of ecological sustainability and social equity, to be achieved through the introduction of two complementary concepts: land management fees and progressive land taxes.

To leave the agricultural sector entirely open to market forces, as proposed above, carries the risk of disaster: not only for producers but also for consumers. One of the few benefits of the storage of excess produce through agricultural support programs has been that in times of shortages, these supplies could serve as buffer stocks. If left entirely to market forces, the agricultural sector is unlikely to be able to cope with consecutive crop failures in major producing areas. The problem is compounded by the tendency of farmers to massively switch to other crops in case of a glut in the market, leading to shortages and price rises of the discarded crop in subsequent cropping cycles. To ensure food security, as well as some measure of price stability for producers as well as consumers, some measure of agricultural planning or at least, co-ordination, is unavoidable.

Agricultural planning would aim at two goals: the optimal use of land and water from a viewpoint of ecological sustainability, and the satisfaction of the global demand for agricultural products. Both goals should be reflected in an integrated framework for agricultural production - from the global, via the national to the regional and local level. The planning for this framework should take into account current land use as well as comparative ecological and economic advantages for regions and countries. Moreover, it should be based on local, regional, national and international demand, and the need to maintain supplies of non-perishable products as reserves in case of major crop failures.

 On the basis of these plans it would be possible to establish which areas should remain under what forms of agricultural production, which ought to be taken into production, and which should be given other uses, such as commercial forestry or the restoration of natural vegetation. For areas destined for agricultural production, broad outlines should be sketched of agricultural systems that would be sustainable from an ecological, economic and social point of view, taking into account current and future demand for agricultural products.