The impending doom in agriculture
The average scientist or economist tends to look short term. In doing so, they are almost always wrong, because very rarely does the short term reflect the true underlying trends.
We’ve seen it with climate science ignoring long-term data (hundreds of millions of years) that shows CO2 was much higher in the atmosphere when temperatures were much lower, which shows that even over the past 6000 years there have been many episodes in which global temperatures were higher than they are today.
But there is another area in which most scientists have been wrong and continue to be wrong: the field of population studies.
Malthus’ blunder was so monumental that people like Paul Ehrlich continued to imagine that the world would not be able to feed the rapidly growing world population after the demographic transition. They turned out to be wrong in every possible way.
Their two basic assumptions were wrong: first, they imagined that the marginal productivity of agriculture was declining. With the help of biochemistry and genetics, we have obtained chemical fertilizers and improved seeds that have massively increased productivity. Second, they imagined that people reproduce like animals. But as people move into middle incomes, reduced infant mortality (again thanks to science) and rising costs of raising children (education) cause their demand for children to fall sharply.
I had the chance to do a doctoral thesis between 1996 and 1999 on the theme of the demand for children, with Richard Easterlin in my committee. Easterlin is one of the greatest demographers in the world. His book, Growth Triumphant, is a masterpiece.
The first thing he said was to look for the longest data series possible. Short-term data is the surest way to make mistakes. Only after we have been able to explain the long-term trends satisfactorily should we tackle the short-term variations.
Here is a summary of population dynamics. It applies to the whole world, without exception. In modern societies, the net present value of raising a child is negative. But everyone usually has a first child, which is welcomed by everyone. After that, however, parents implicitly begin to make economic calculations. Parents will have more than one child even if their “heritage returns” are negative – but only if they feel the need for old-age and care insurance (which no one can provide better than a child).
But as foolish governments intervene with welfare and retirement programs, the economic “need” for children as insurance diminishes, and even the second child is no longer wanted. As a result, in developed Western countries (with pension systems), the total fertility rate (TFR) is now well below 2. In some countries it is now 1.1 – the population of these countries will disappear if this trend continues.
There are 96 countries today with a TFR below replacement level (generally taken to be 2.1, to compensate for child mortality). The list includes not only China but also India, Nepal, Bangladesh, Sri Lanka.
The world population growth rate peaked at 2.1% in 1968 and has been falling ever since. It is now growing globally at the rate of 1.08% per year and decelerating rapidly. Japan has been experiencing a decline in population for more than five years.
In the meantime, science and technology continue to drive us towards a zero marginal cost society – with the cost of producing almost everything bound to come down. Similar trends are visible in agriculture. With slowing population growth and agricultural productivity showing no signs of slowing down, demand for food will stagnate and even (eventually) decline, even as more and more food is produced.
The graph titled World Population Growth, 1700-2100, on Our World in Data, is enough to understand what is happening. Population (i.e. the size of the farmers’ market) is growing at 1.08% per year, but this rate is slowing. Food production growth can easily cope with this 1% growth rate, as it even faced 2% growth rates earlier (with countries like the US, USSR, Canada and Australia supplying the rest of the world at that time).
Now imagine that food production is growing at 1-2% per year but population growth is falling below 1%. This point is already there – but this extra nourishment is temporarily absorbed as people get richer.
People ask for the most expensive foods. More food is used to produce animals as people turn to meat. Some foods (eg corn) go towards ethanol production. But the big trend is unambiguous, and within 10 years this problem will become insoluble.
Farmers will continue to produce more and more food, but population growth will continue to decline, before turning negative around 2100. Unlike the smartphone market where the same group of customers demand a new phone every few years, farmers don’t have no means of “developing their market”. . Once humans stop being produced, that’s it.
Prices operate on the margin. When there is oversupply, prices fall – not just for marginal agricultural production, but for all of it. Only highly productive farmers whose marginal costs are at or below this lower price will survive. The rest will face perpetual loss, forcing them to close their doors.
Competition in the agricultural sector has been masked so far because agricultural production has more or less followed demand. But fierce price competition will begin when demand slows while productivity continues to rise. The least productive farmers will have no place to hide. The terms of trade have been unfavorable to agriculture for over 150 years, as productivity growth in the rest of the economy has outpaced agricultural productivity growth. This trend will continue to grow.
This decade is the last stand for farmers. Forces greater than any they have known before will strike them within 10 years. While temporary food security issues may arise sporadically in some parts of the world, there is nothing but an endless food surplus visible in the future of humanity in the early to mid-2030s.
The small and poorest farmers in India are generally among the least productive. They face a life of perpetual loss unless the reforms and restructuring detailed in the Swatantra Bharat Party’s draft discussion paper are implemented now. The abolition of the cap and all restrictions on markets must be removed immediately, so that loss-making farmers can sell when the price of their land is still high. In a few years, with agriculture becoming perpetually in deficit, the rate of growth in land prices will decrease or even fall. The reforms are crucial for the restructuring of agriculture that is needed in India.
The opinions expressed above are those of the author.
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