Opinion: Why farmers need a payrise
Julian Cribb FTSE
The world’s farmers need a pay rise – or, come the mid-century, the other 8 billion of us may well find we do not have enough to eat. True, this assertion flies in the face of half a century of agricultural economics orthodoxy – but please bear with me as I explain. Globally (and in Australia), food has become too cheap. This is having a wide range of unfortunate – and potentially dangerous – effects which include:
• Negative economic signals to farmers everywhere, telling them not to grow more food
• Increasing degradation of the world’s agricultural resource base
• A downturn in the global rate of agricultural productivity gains.
• An ‘investment gap’ which is militating against the adoption by farmers of modern sustainable farming and other new technologies
• A deterrent to external investment because agriculture is less profitable than alternatives.
• The decline and extinction of many local food-producing industries worldwide
• A disincentive to young people (and young scientists) to work in agriculture.
• Loss of agricultural skills, rural community dislocation and increased rural and urban poverty affecting tens of millions
• Reduced national and international investment in agricultural research and extension
• The waste of up to half of the food which is now produced
• A pandemic of obesity and degenerative disease that sickens and kills up to half of consumers of the ‘modern diet’ resulting in soaring health costs
• The failure of many developing countries to lay the essential foundation for economic development – a secure food and agriculture base – imposing direct and indirect costs on the rest of the world through poverty, war and refugeeism.
From this list it can be seen that low farm incomes have far wider consequences for humanity in general than is commonly supposed.
Indeed, in a context in which all of the basic resources for food production are likely to become much more scarce, it may be argued that, indirectly, they imperil every one of us.
A market failure
This aspect of the future global food security issue is primarily about a market failure.
At its ‘How to Feed the World’ meeting in October 2009 the UN Food and Agriculture Organisation stated that investment of the order of $83 billion a year was needed in the developing world alone, to meet the requirement for a 70 per cent increase in food production by 2050. However, almost in the same breath, it noted “Farmers and prospective farmers will invest in agriculture only if their investments are profitable.”
The logic is unassailable. Today many of the world’s farmers have little incentive to invest in agriculture because the returns are so poor. This applies as much to highly-skilled and advanced farmers in developed countries such as Australia or the US, as it does to struggling smallholders in Asia or Africa.
Reasons for the low returns are not hard to find: farmers are weak sellers, trapped between muscular globalised food firms who drive down the price of their produce, and muscular industrial firms who drive up the cost of their inputs. This pincer movement not only discourages ‘developed’ agriculture but also prevents undeveloped agriculture from developing.
Nothing new here, you may say. So what has changed? A growing imbalance in power between farmers and those who dominate the food supply chain is what has changed.
Two decades ago most farm produce was largely bought from local farmers by local buyers for local markets and consumers. In the 21st century there has been an increase in the concentration of market power in the hands of a very small number of food corporations and supermarkets sourcing food worldwide. These are – quite naturally – doing all they can to reduce their input costs (farm prices) as they compete with one another. This is not a rant about globalisation: it’s a simple observation about the facts of global economic life.
The power of the farmer to resist downward price pressure has not increased. Indeed it has weakened as the average producer now competes against some struggling farmer in a far away country, rich or poor, who is also simply trying to survive by selling at the lowest price.
The power of the global input suppliers – of fuel, machinery, fertilizer, chemicals, seeds and other farm requirements, has also grown as they concentrate and globalise. This makes it easier for them to raise the cost of their products than it is for farmers to obtain more for their wheat, rice, livestock or vegetables or to withstand input price hikes.
As a consequence of this growing market failure, the economic signal now reaching most of the world’s farmers from the market is “don’t grow more food”.
Its effect is apparent in the fact that world food output is now increasing at only about half the rate necessary to meet rising demand, and that yield gains for major crops have stagnated.
While some will argue all this makes for greater economic ‘efficiency’, the logical outcome of unrestrained global market power will eventually displace around 1.5 billion smallholders, with devastating consequences for the landscapes they manage. Putting one in five of the Earth’s citizens out of work and destroying the food base is not a strategy any intelligent policy or government would advocate, one hopes. But it is one of those ‘externalities’ which classical economics sometimes omits to factor in – and is happening, nevertheless.
In a recent satellite survey, researchers working for FAO reported 24 per cent of the Earth’s land surface was seriously degraded – compared with 15 per cent estimated by an on-ground survey in 1990. The FAO team noted that degradation was continuing at a rate of around 1 per cent a year.
Every agronomist and agricultural economist knows that, when farmers are under the economic hammer, a good many of them will overstock and overcrop in a desperate effort to escape the poverty trap – and this leads to the kind of resource degradation exemplified by the Oklahoma dust bowl and, in Australia’s case, the Eyre Peninsula disaster of the 1940s and maybe the Murray-Darling water crisis of today. In marginal country, cost/price pressures can devour landscapes – and this is undoubtedly a major factor (though not the only one) in the degradation of land and water worldwide, especially in the world’s rangelands.
If we continue to sacrifice one per cent of the world’s productive land every year, there is going to be precious little left on which to double food production: yields in 2050 would have to increase by 300 per cent or so, which is clearly a tall order. (To put it in local perspective, Australian dryland wheat yields would need to go from 3t/ha to 12t/ha – at a time when the climate is expected to dry out!)
Much the same applies to irrigation: “In order to double food production we need to double the water volume we use in agriculture, and there are serious doubts about whether there is enough water available to do this,” is how Dr Colin Chartres, director general of the International Water Management Institute summed it up recently.
Solutions to land and water degradation are reasonably well known, and have been shown to work in many environments – but are not being adopted at anything like the rates necessary to double world food production or even to conserve the existing resource base. One reason is that farmers, in the main, cannot afford to implement them, even though many would like to do so.
As a result, world agriculture is today primarily a mining activity. We all know what happens to mines when the ore runs out.
Today there is persuasive evidence that world agriculture is dropping off the pace – that it is no longer making the yield advances and total productivity gains achieved in the previous generation. The Australian Farm Institute’s work supports this.
In a recent paper Alston and Pardey also documented this decline in the US and globally attributing it significantly to falling investment worldwide in agricultural science and technology and extension of new knowledge to farmers.
However the role of low returns in discouraging farmers, in both developed and developing countries, from adopting more productive and sustainable farming systems cannot be overlooked. While a few highly efficient and profitable producers continue to make these advances, the bulk of the world’s farmers are being left behind. Since small farmers feed more than half the world, this is a matter of some concern.
In Australia the effect of low farm prices is to directly cut the farmer contribution to research, which governments then exacerbate by cutting the public contribution in due proportion, creating a ‘double whammy’. The trend of neglect is then compounded by reductions in direct public investment, in our state agriculture departments and science agencies.
Australia is not alone in cutting support for farm research that underpins productivity gain. It has happened in most developed countries and even in places such as China, where the level of ag R&D support is falling as a proportion of the total science investment. With agricultural R&D comprising a mere 1.8 cents of the developed world’s science dollar in 2000, you can get a very clear idea how unimportant most governments now consider food production to be.
The fact that agriculture appears perennially unprofitable and suffers from continuing social malaise probably contributes, subliminally, to a view that society ought not to be wasting its money funding research for a bunch of losers: there are a thousand other more attractive and exciting fields for scientific investment. This negative (and false) image of agriculture is an unspoken driver behind the reduced global R&D effort.
Is food too cheap?
For affluent societies at least, food is now the cheapest in real terms it has ever been in human history.
Back in our grandparents’ time, in the early part of the 20th century, the average Australian wage earner devoted about a third of their weekly income to food. Rent was relatively cheap, people didn’t have cars, iPhone bills, plasma TVs, facelifts or overseas vacations – and food was essential. By the 1970s the amount of household disposable income spent on food was down to 20 per cent. Today it is around 11-12 per cent in Australia and similar in other western nations. As incomes rise in China and India, the proportion is falling there too.
It seems almost redundant to observe that, when something is too cheap, people do not value it as they should. This produces a lack of respect for the product itself, for the people and industries involved in its production – farmers and scientists – and for the place it is produced, the bush. It is responsible for the negative image held by governments, businesses and societies towards agriculture and its investment needs.
In an age where 3.5 billion humans have only the dimmest notion where their food comes from, lack of respect for the main thing that keeps them alive is coming to be a predominant ‘value’ in the human race.
A culture of waste
Food is now so cheap that developed societies such as the US, Britain and Australia throw away nearly half, while developing countries lose nearly half.
A society that pays its farmers such a low return, has found it can afford to send nearly half of their efforts to landfill.
Or burn in an SUV enough grain in one week to feed a poor person for a year.
Where our ancestors stored, conserved and recycled nutrients, it now appears we waste 80% -90% of all the nutrients used in agriculture. On farm, up to half the applied fertiliser does not feed crop or pasture but escapes into the environment. Of the harvested nutrients, some are lost post-harvest, in processing and cooking – but more than 30 per cent are simply discarded, in the shops and in the home. Then we dump around 90 per cent of our sewage nutrients in the ocean.
In short, the modern food system has established a culture of total waste, sustained only by the mining of energy and nutrients (from rock or soil), which will eventually run out or become unaffordable to most farmers.
It cannot last more than a few decades and we will need to recycle and invest in new systems – but for that to occur, farm incomes must rise.
An unhealthy situation
Cheap food is also responsible for a pandemic of disease and death larger in the developed world than any other single cause of human mortality. Cheap, abundant processed food is a driver for obesity, which now affects one in five humans, and plays a role in the society-wide rise in cancers, heart disease, diabetes and stroke.
Cheap food, in other words, is an economic invitation to consumers – including millions of children – to kill themselves prematurely through overindulgence.
Cheap food is the chief economic driver of the greatest budget blow-out in all western democracies: healthcare.
Solving the food challenge
The purpose of this essay is to call attention to the effect a never-ending reduction in farmers’ incomes will have on world food security at a time of rising physical constraints to production, including scarcities of land, water, energy, nutrients, technology, fish and stable climates.
At the very time when most experts agree we should be seeking ways to double food output sustainably over the coming half-century, the ruling economic signal is: “don’t do it”.
Of course, we could simply obey the economic signal and allow agricultural output to gradually fall behind – but that will expose 8 or 10 billion consumers to massive unheralded price spikes, of the sort experienced in 2008, which have a dire impact on the poor, start wars and topple governments – and will not benefit farmers as much as a stable, steady increase in their incomes.
It is necessary to state this essay does not advocate a return to agrarian socialism, protectionism, commodity cartels or an end to free markets. In fact, we probably need to move much faster and further towards totally free trade in agricultural products in order to encourage efficient producers – large and small – around the world.
But it does hold up a warning flag about the universal dangers of underinvestment, negative signals and sentiment, resource destruction and rural dislocation caused by the undervaluing of the one commodity humanity absolutely cannot do without, as we approach the greatest demand for food in all of history.
There are numerous ways this issue might be addressed. Here are a few:
1. Price: through an educated “community consensus” that results in willingness on the part of consumers, supermarkets and food processors to pay more for food so as to protect the resource base and enable farmers to invest in new technologies
2. Subsidy: by the payment of a social wage to farmers by governments for their stewardship on behalf of society of soil, water, atmosphere and biodiversity, separate from their commercial food production
3. Regulation: by limiting by law those practices or technologies which degrade the food resource base and/or rewarding those which improve it
4. Taxation: by levying a resource tax on all food which reflects its true cost to the environment to produce, and by reinvesting the proceeds in more sustainable farming systems, R&D, rural adjustment and enhanced resource management.
5. Market solutions: establish markets for key farm resources that result in higher returns for farmers from wise and sustainable use.
6. Public education about how to eat more sustainably; industry education about sustainability standards and techniques.
7. A combination of several of the above measures.
The technical solutions to many of the world’s food problems are well-known and well understood – but they are not being implemented as widely as they should because of a market failure which is blocking of their adoption. To avoid grave consequences, affecting billions of people, that failure needs correction.
It is not the purpose of this essay to solve the issue of how to deliver fairer incomes to farmers worldwide, but rather to encourage debate among thoughtful farmers, policymakers and researchers about how we should go about it.
But it does question whether some of the ‘old truths’ of the 20th century still apply in the 21st, or whether the age of globalisation and resource scarcity has changed the ground rules.
It also asks whether the unstinted application of overwhelming market force against farmers is the act of a sapient species – or a mob of lemmings?
Over to the sapient ones among you.
– Julian Cribb