Why India Needs Fewer Farmers

Reducing poverty is frustratingly difficult. The good news is that there is broad agreement on the goal of such efforts: that ordinary families should be able to support themselves by gainful, meaningful work. The bad news is that there is little agreement about which policies are most likely to achieve this goal, and the confidence with which various anti-poverty policies are proposed often seems to have more to do with ideology than with evidence.

Once, when I was in La Paz to give some lectures, I had a long conversation with the distinguished chair of the department of economics at the Catholic University of Bolivia. He told me that, under different political parties, his nation had tried every conceivable policy for economic development, and none of them had lifted Bolivia’s poor out of poverty. International forces were part of the problem—he was no neoliberal—but the primary problem was just that poverty is so difficult to overcome.

A big part of that problem for poor nations around the globe is rural poverty and the fate of small farmers. The most recent struggle over agriculture to make the news came from India, where tens of thousands of farmers gathered in Delhi to protest against recent policy changes enacted by the ruling BJP party and its prime minister, Narendra Modi.

Three laws passed in September 2020 allowed farmers to sell their rice and wheat outside the current government-regulated wholesale markets, where farmers are guaranteed a minimum price. The farmers feared this was only the first step of an effort to end government-funded minimum prices for these grains and to open the way for fewer, larger farms. Following more than a year of protests in the streets of Delhi and elsewhere, Modi capitulated in November 2021. Emboldened by the victory, many Indian farmers are now calling for price supports for all farm products.

Commonweal correspondent Jo McGowan’s latest dispatch from India (“Modi Backs Down,” January 1, 2022) celebrates the political victory of the farmers; but, like her previous article on the protests (“Why the Farmers Are Angry,” February 23, 2021), it seems to be based on the assumption that India can sustain its current number of farmers while providing them all with a better life in the long term. But no nation on earth has been able to do this, for one simple reason.

McGowan herself notes that agriculture made up 60 percent of India’s total production (GDP) in 1960 but makes up only 15 percent today, while 50 percent of the population still depends on agriculture for its livelihood. But why has agriculture’s share of GDP dropped so precipitously in the past half century? McGowan blames it on neoliberal globalization and the policies of India’s current government. Neoliberalism is guilty of a host of terrible problems around the planet, but this isn’t one of them.

Chart 1 illustrates the relationship between a nation’s prosperity and the proportion of GDP generated by agriculture. As nations grow wealthier—and as poor nations grow less poor—farming produces a smaller and smaller share of their GDP. Chart 2 shows the same general picture, this time identifying the proportion of farmers in a nation’s total workforce. Seven nations are represented, but every nation on earth has seen this long-term steady change in employment. Although agricultural workers make up less than 3 percent of the total workforce in the wealthiest nations, they represent over 50 percent of all workers in the poorest nations. That used to be true everywhere before the Industrial Revolution.

In this transition, farmers, or more frequently their adult children, are often lured away by better prospects elsewhere. (Non-farm incomes in India are about double those of farm incomes.) And even those who continue to farm start earning wages off the farm. According to India’s National Statistical Office, between 2012 and 2019 the average income of farm households from crop cultivation barely kept up with inflation, but the farmers’ overall inflation-adjusted income, including wages from other jobs, rose by 50 percent. And even with some outside income, many are forced to leave farming in desperation after personal financial collapse.

What accounts for this transformation? It’s surely hard to blame the policies of the Indian government for three centuries of change in agriculture around the world. And those who want to blame neoliberalism will have to stretch that term to include eighteenth-century England and nineteenth-century France.

A better explanation is based on the economist’s notion of the income elasticity of demand for food. As incomes rise, people spend more on most things they buy, but not the same percentage more on each thing. People spend a little more on food than before but a lot more on other things. Consider what a family would do if their income rose by 10 percent next year. Desperately poor families around the world might spend all that increased income on food. But above a certain level of economic security, a 10 percent rise in income leads families on average to spend only between 4 and 6 percent more on food. Even most poor families spend less than 10 percent extra on food and increase their spending on other things by more than 10 percent—saving for a small refrigerator, say, or “paying” for their daughter to stay in school by forgoing the income she could otherwise earn.

While the share of total household expenditures going to food falls, within those expenditures on food the share that goes to the farmer also falls. As incomes rise, people spend a growing share of their food budget on the processing of food (e.g., purchasing bread instead of buying the ingredients and baking it at home) or on prepared meals (whether at restaurants, grocery stores, or on the street). The fundamental forces at work here are not ideology but the choices of ordinary families. If the number of people working in agriculture remains constant while these changes occur, farmers will have to divide up a smaller and smaller share of their nation’s wealth. The incomes of farm families will rise a bit, but much more slowly than the incomes of their fellow citizens in the cities. And that gap will increase over time.

This is what has been happening in India. Some may say that most Indian farmers would be content with what they once had and only wish to regain the minimum of security they previously enjoyed. But that’s already impossible; and their current position will slowly, inevitably, become more precarious over time.

It is immensely difficult for a nation to responsibly assist in the shift of workers from traditional agriculture to other, better-compensated occupations. Political corruption and partisanship make it even more difficult. But if the long-term economic dynamics are misunderstood, there is even less hope for moving in the right direction, toward a just and sustainable society. The problem every poor nation must face is how to help reduce the number of people working on farms so that the farmers who remain can earn a decent living.

And, yes, the requirements of a “decent” life do change as a poor nation becomes less poor. Farmers today may value putting their children to work at a young age to help the family, but will their adult children not want more education (and other of life’s conveniences) for their own teenagers?

Few nations have the options available to the Chinese government, which late last year “persuaded” Alibaba, the Chinese equivalent of Amazon, to spend more than $15 billion to address poverty and reduce income inequality in the company’s home province, south of Shanghai. The main problem, of course, is the transition out of rural poverty, and Alibaba will be investing in ten projects to create jobs, provide services to vulnerable groups, and make technological innovations more widely available. China can strong-arm firms and violate human rights where democracies cannot, but it’s clear that the Chinese government understands that an end to rural poverty will not come by supporting a constant population of agricultural workers.

Some say that political stability requires governments to allow farmers to continue as in the past. It is perfectly understandable why farmers in India do not want to leave farming, and India’s democratically elected government needs political support from a large percentage of farmers to stay in power. But democracy in India will not be sustainable if a constant 50 percent of the population continues to be dependent on agriculture’s ever-shrinking share of the nation’s wealth. Today’s 15 percent of GDP will become 10 percent, and, eventually, only 5 percent. Political instability is inevitable if the percentage of the population working on farms remains constant.

This is not an endorsement of neoliberalism. A moral economic-policy structure will not defer to every market pressure. Many “market forces” do not deserve the deference that neoliberalism recommends. And there is much that governments can and must do to reduce the back-breaking poverty of so many. But the most fundamental forces causing these ongoing changes in agriculture are the same in every nation on the planet, and they are irreversible. I am not defending the particular policies the Modi government tried to implement. (That would require a different conversation.) And I agree with McGowan that co-operatives and better agricultural science can help Indian farmers today. But no nation has been able to do what she seems to hope India can: maintain a large, stable proportion of agricultural workers and simultaneously ensure their long-term economic well-being.

Some economic goals that are morally attractive are also impossible. Recognizing this does not require that we resign ourselves either to the status quo or to uncontrolled workings of blind market forces, but it does prevent us from looking for hope in the wrong direction.