Peasants marginalized by big farmers

Vikas Rawal and Jomo Kwame Sundaram

NEW DELHI and KUALA LUMPUR: A recent Food and Agriculture Organization (FAO) study shows the largest farms cultivate a high and increasing share of agricultural land in much of the world.

Farm size concentration

World Agricultural Census data for 129 countries show about 40% of the world’s farmland is operated by farms over 1000 hectares (ha) in size. About 70% is operated by the top 1% of farms, all bigger than 50 ha each.

A rising share of farmland is in larger farms. But farm sizes in developed and developing countries seem quite different. Farms smaller than 5 ha accounted for 63% of land in low and lower middle-income countries. But such farms covered only 8% of farmland in upper middle and high-income countries.

The “share of farmland farmed on the largest holdings has increased in … several European countries (France, Germany and the United Kingdom of Great Britain and Northern Ireland) and in the United States of America.” Similarly, in recent decades, more land in many Latin American and sub-Saharan African countries is in larger farms.

Data coverage uneven

Most agricultural censuses in developing countries do not cover large scale farms well. Official agricultural statistics in many developing countries focus on farm households, often ignoring corporate farms.

Agricultural censuses typically rely on land records, usually neither up to date nor complete. Large farms often have land registered to different persons and entities, typically to avoid taxes and bypass land ownership ceilings and regulations.

Government surveys in India have not comprehensively covered large farms, understating inequality. Other data from India suggest the top fifth of farms account for 83% of land.

Even where large farms are legally recognized as commercial entities, land is often held via subsidiaries in complex arrangements. For such reasons, the extent of concentration is probably greater than what the study suggests.

Ominous trends

Despite its limitations, the study findings are ominous. Changing inequalities in farmland ownership and cultivation have reduced the smallholder or peasant share of food production.

The study suggests that ‘land grabs’, new laws and policies have enabled large (capitalist) farmers, agribusiness corporations and other commercial entities to control most of the world’s farmland.

Disparities in government support allowed by World Trade Organization and other trade agreements have enabled large farms in developed countries, like the US, to gain more advantages over relatively uninfluential peasants in the South.

More advantages to big farm capital in recent decades, particularly to large-scale commercial agriculture in the global North, have enhanced their edge. More peasant distress has pushed many deeper into debt. Many of the most vulnerable have had to migrate, seeking precarious employment elsewhere.

Under various pressures not to protect food agriculture, developing countries have cut support for peasants. Withdrawal of such assistance has forced farmers to buy inputs at commercial prices. Meanwhile, many have to sell their produce cheap to those providing credit or other facilities.

By enabling easier land takeovers, commercial farming has quickly spread in ecologically fragile areas such as the Brazilian Cerrado, various parts of sub-Saharan Africa and steep slopes subject to deforestation.

Small farms, world food

The study has triggered a controversy by asserting that ‘family farms’ is a broader category than smallholdings. These would include large family-owned or run farms.

Hence, family farms account for 80% of the total value of food produced in the world, while smallholdings account for only 35%. These estimates have been contested by several civil society organizations who have protested to the FAO Director General.

Most agricultural censuses do not provide data on production by farm size. Instead, the study divides the total market value of a country’s food output by its total farmland. It then assumes a constant food output value per hectare. But this ignores significant differences in crop output among farms of different types.

Commercial bias

In many countries, large farms produce more commercial crops, not necessarily food. These may be for manufacturing (e.g., rubber, cotton), animal feed, or to be industrially processed for consumption (e.g., sugar, palm oil, coffee).

Many smallholder peasants consume significant shares of their own farm outputs. They typically work on limited land and need to meet their own food needs, rather than maximize cash incomes. Hence, their priorities may be rather different from those of commercial farms.

More fertile regions (e.g., river deltas) tend to have greater population densities, smaller farm sizes and higher productivity. Such smaller farms often grow multiple crops yearly, while larger farms with harsher agro-climatic conditions (e.g., higher temperatures, more snow or less water availability) often only have a single crop annually.

Although not universal, and often overstated, there is evidence of smallholders having higher land productivity, inversely related to farm size, owing to differences in the way factor inputs are used by various types of farms.

By assuming constant food output value per hectare, the study ignores many important variations, and probably under-estimates the contributions of small farms to world food supply.

Peasants marginalized

The study shows how various systemic advantages and biases have enabled big capitalist farms to control more of the world’s farmland and food supplies. But the share of food supply produced by smallholder producers is far from settled.

While more pronounced in rich countries, large corporate farms have also been growing in many developing countries. Even where family farming is predominant, increasing farm sizes have been apparent.

The study rightly notes the need to consider different types of farms in making appropriate policies for family farms of various sizes. This is necessary to better formulate policies to address poverty and livelihoods, especially for smallholder producers in distress.

It even suggests the need to “hold large scale and corporate agriculture accountable for the negative externalities of their production (for example on the environment)”. Besides better farming data, farmland concentration and its many implications in various parts of the world should be more appropriately addressed.

Vikas Rawal is Professor of Economics at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. He has conducted field research on agrarian relations in different parts of India for three decades, and works on global agricultural development challenges. Inter alia, he was lead author of The Global Economy of Pulses (FAO).

Resist inflation phobia coup

Anis Chowdhury and Jomo Kwame Sundaram

SYDNEY and KUALA LUMPUR: Calls, even screams, to fight inflation above all else are getting shriller. Thankfully, even The Economist (5 Feb. 2022) reminds all, Fighting inflation could put the world in a slump.

No inflation consensus

International Monetary Fund (IMF) Managing Director Kristalina Georgieva doubts the world faces a runaway inflation threat. She urges policymakers to carefully calibrate fiscal and monetary policies, with more “specificity”, as not ‘one size fits all’.

Widespread reversal of COVID-19 spending and low interest rates threaten recovery. Similarly, Bank of England chief economist Huw Pill stressed the central bank was not going all out to tighten monetary policy.

Instead, like Georgieva, he advocates a more nuanced approach, reasoning, “As the pandemic recedes and the level and composition of global demand and supply normalise, these inflationary pressures should subside”.

US inflation phobia

Inflation hawk Larry Summers – Clinton’s last Treasury Secretary and Director of the National Economic Council during Obama’s first two years – claims it is “wishful thinking” that current inflationary pressures will subside.

He insists, “The painful lesson of the 1960s, 1970s and the 1982 recession is that excessive demand stimulus leads not just to inflation, but to stagflation and ultimately recession, as inflation must eventually be brought under control”. But Summers’ economic history is partial, tendentious and misleading.

Draconian[PJKS1] [A2] policy prescriptions supposedly inflict ‘short-term pain for long-term gain’, but care little for their ramifications. Summers has nothing to say about how the early 1980s’ interest rate hikes pushed nations into default, triggering debt crises, and over a decade of stagnation in much of the global South.

Most governments can do little to tackle rising commodity, especially fuel and food prices. Conventional monetary tightening reduces overall inflation, typically by inflicting much unemployment, without affecting international sources of inflation.

Recent US wage growth

The recent US wages growth that Summers is obsessed with is actually very different in cause and consequence from the pay rises in the decades he decries. Europeans have also been quick to point out how different inflation on their continent has been.

First, recent wages growth is not due to workers’ collective bargaining, as in the 1960s. Or ‘wage-indexation’, linking wage growth to inflation during the 1970s.

Workers’ bargaining power has declined greatly since the 1980s, with labour market deregulation increasing casualization.

Meanwhile, foreign direct investment has accelerated offshoring, while technological changes have reduced labour needs. Many have changed to self-employment, informal work and other ‘off-the-books labour’. By 2020, there were more than two billion in informal work, mostly in developing countries.

The pandemic has greatly increased ‘gig work’, especially in higher income countries. More piecework remuneration and illusions of independence barely compensate for less bargaining power, and greater labour, work and income insecurity. Working from home increases unpaid overtime work as ‘wage theft’ becomes more widespread.

Second, apparent wage rises may be a statistical anomaly. An estimated third of the total US non-farm workforce, many low-paid – quit their jobs in 2021 for health and safety reasons while better paid workers remained in employment.

IMF research also found labour supply declined in the US and the UK as older workers and mothers with young children quit due to pandemic related challenges. This changing composition of employment has raised the average wage.

Consider a job market with three workers – A, B and C, with hourly wages of $10, $20 and $60 respectively. The average hourly wage is $30. If worker A quits, the average hourly wage – for workers B and C – will be $40. This raises the average hourly wage by $10 – not due to wage growth, but the changing workforce composition.

The higher reported US wages reflect the one-time impact of increased minimum pay, especially when paid by major employers with a nationwide presence such as Target, Southwest Airlines, CVS Health and Walgreens.

Bleak prospects

The IMF’s October 2021 World Economic Outlook saw bleak prospects for low-skilled and young workers. This seems consistent with why low paid workers are reluctant to work for a pittance at great personal risk to themselves.

Many younger workers face special difficulties, e.g., parents of young children due to inadequate childcare facilities and pandemic school disruptions. The mismatch between available jobs and what people want has also grown.

Current inflationary pressure resembles the post-World War Two situation, with pent-up demand for consumer goods unleashed before war-disrupted supplies were restored. Inflation reached nearly 20% in 1947 before collapsing.

Current consumption demand still faces supply chain disruptions due to the pandemic. But such situations are very unlike the episodes Summers cites to make his alarmist case for prioritizing inflation.

Conventional anti-inflationary policies – e.g., fiscal austerity, raising interest rates and credit tightening – are not only inappropriate for dealing with current inflationary pressures, but can be very harmful – as the IMF chief warns.

Understanding inflation

The pandemic has triggered large price increases – notably for food, clothing, fuel and communications. The mismatch between labour supply and demand in some sectors has also become more acute.

Meanwhile, US government data show US non-financial corporations raked in their largest profits ever since 1950 in the second half of 2021 despite rising labour costs. But Summers denies that monopolistic corporate behaviour has contributed to price increases.

Overall corporate profits rose 37% from the previous year while employee compensation only increased 12%, despite “the second year of a pandemic which began by wiping out 20 million jobs”.

US Senator Sherrod Brown (Democrat-Ohio) has asserted that “prices are high because corporations are raising them – so they can keep paying themselves with ever-larger executive bonuses and stock buybacks”.

Rising house prices and accommodation rentals are also raising living costs. Following the 2008-2009 global financial crisis (GFC), governments ill-advisedly abandoned fiscal recovery efforts early. Unconventional monetary policies became the main policy tool since.

This has encouraged real estate and financial asset speculation, instead of investing in productive capacity. Fiscal austerity and continued reliance on market solutions also deter government actions to address key supply chain bottlenecks.

Lack of effective coordination between fiscal and monetary authorities – e.g., in responding to the pandemic – has exacerbated such situations. Instead, commodity and real estate speculation has been much enabled.

Such perverse incentives have undermined needed investments in information and communications technology (ICT), renewable energy, sustainable agriculture, healthcare and education. Businesses have even paid out dividends and bonuses with COVID relief funds. Thus, billionaires got billions more.

Nuance and specificity

Effective coordination between fiscal and monetary authorities is vital for a nuanced approach to ensure sustainable, inclusive and resilient recovery. Fiscal-monetary policy coordination is also needed for a range of long-overdue reforms to address structural factors exacerbating inflationary tendencies and pressures.

But earlier reforms to ensure central bank independence and strict ‘fiscal rules’ in favour of market solutions have undermined government fiscal and monetary capacities to act effectively. Thus, such policies and related ones – e.g., inflation-targeting – must be irreversibly consigned to the policy garbage bin.

Knee-jerk responses to fear mongering by inflation hawks will derail global recovery which the IMF deems “disruptive”. The Fund is also concerned about “divergent” recoveries between rich and poor nations.

Instead of the new Cold War preference for economic sanctions at the slightest pretext, much better and more sustained international cooperation and policy coordination are needed. They must address global supply chain disruptions, stabilize international commodity prices and minimize harmful policy spill overs.

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[PJKS1]Any link as he comes across to many as reasonable [A2]Can’t find any link specifically to Summers; but what he is saying is pretty extreme and we can level it “draconian”.

Inflation paranoia threatens recovery

Anis Chowdhury and Jomo Kwame Sundaram

SYDNEY and KUALA LUMPUR: Inflation hawks are winning the day. The latest ‘beggar thyself’ race to raise interest rates has begun. This ostensibly responds to the spectre of runaway inflation, supposedly retarding economic growth and progress, and thus threatening central bank ‘credibility’.

Inflation fetish

The ‘one size fits all’ policy of raising interest rates to contain inflation is being touted again, the world over. This will surely kill national efforts to revive economies reeling from COVID-19 pandemic slowdowns.

Central banks in many emerging market and developing economies (EMDEs) – such as Brazil, Russia and Mexico – began raising policy interest rates right after inflation warning bells were set off after mid-2021. Indonesia and South Africa have since joined the bandwagon.

International Monetary Fund (IMF) Managing Director Kristalina Georgieva has warned that US interest rate rises would “throw cold water” on global recovery, especially hurting struggling emerging markets.

An earlier IMF blog had urged EMDEs to prepare for earlier than expected US interest rate hikes. The Fund has lowered its growth projections as the inflation bogey induces monetary and fiscal tightening.

Inflation paranoia

Inflation hawks denounce price increases, claiming – without evidence – that it impedes growth. Former World Bank chief economist Michael Brunoand William Easterly refuted these popular, but false prejudices.

Using 1962-1992 data for 127 countries, they found, “The ratio of fervent beliefs to tangible evidence seems unusually high”. They also found extremely high inflation – over 40% yearly – mainly due to very exceptional circumstances, e.g., Nicaragua after the Sandinista takeover.

Bruno and Easterly concluded that inflation under 40% did not tend to accelerate or worsen. They concluded, “countries can manage to live with moderate – around 15–30 percent – inflation for long periods”.

Bank economists Ross Levine, Sara Zervos and David Renelt confirmed a negative inflation-growth relationship to be exceptional, and due to a few extreme cases.

Rudiger Dornbusch and former IMF Deputy Managing Director Stanley Fischer came to similar conclusions. They too found moderate inflation of 15–30% did not harm growth, emphasizing “such inflations can be reduced only at a substantial short-term cost to growth”.

Citing IMF research, Harry Johnson also argued that while very high inflation could be harmful, there was no conclusive empirical evidence of the alleged inflation-stagnation causal nexus.

Even monetarist guru Milton Friedman acknowledged, “Historically, all possible combinations have occurred: inflation with and without development, no inflation with and without development”.

Thus, the Fund and the Bank have no sound bases for promoting draconian policies to eliminate inflation above, say 5%, by citing a few exceptional cases of very high, runaway inflation and low growth.

Inflation misdiagnosed

Friedman’s sweeping generalization that “inflation is always and everywhere a monetary phenomenon” ignored other factors possibly contributing to inflation.

Without careful consideration of inflation’s causes, the same old policy prescriptions are likely to fail, but not without causing much harm. Prices tend to rise as demand outstrips supply. This can also happen when demand rises faster than supply, or if demand does not decline when supply falls.

The IMF attributes the current inflationary surge to supply chain woes, higher energy prices and local wage pressures. While demand has been boosted by pandemic relief and recovery measures, where existent, supply shortages remain vulnerable to disruptions.

Rising food costs are also pushing up consumer prices. Extreme weather events – droughts, fires, floods, etc. – have affected food output. More commodity price speculation – e.g., via indexed futures – has also raised food prices.

Although wages have risen in some sectors in some countries, economy-wide wage-price spirals are unlikely. Employment suffered during the pandemic while unionization is at historically low levels.

Labour’s collective bargaining powers have declined for decades, especially with technological change, casualization and globalization lowering the labour income share of GDP.

As the profit share of income continues to rise, rising mark-ups and executive remuneration also push up prices. With more market monopoly powers, price gouging has become more widespread with the pandemic.

Understanding what causes particular prices to rise is critical for planning appropriate policy responses. Although devoid of actual diagnoses, inflation hawks have no hesitation prescribing their standard inflation elixir – raising interest rates.

Raising interest rates may help if inflation is mainly due to easier credit fuelling demand. But tighter credit is unlikely to effectively address ‘supply-side’ inflation, which typically requires targeted measures to overcome bottlenecks.

Interest rates harm

Higher interest rates increase borrowing costs, squeezing investment and household spending. This hits businesses, hurting employment, incomes and spending, and can result in a vicious downward spiral.

Higher interest rates also increase governments’ debt burdens, forcing them to cut spending on public services including healthcare and education. Incredibly, elevated interest rates – harming investments, jobs, earnings and social protection – supposedly benefits the public!

The adverse spill-over impacts of rising interest rates are also considerable. Raising rates in major advanced economies weaken EMDE capital inflows, currencies, fiscal positions and financial stability, especially as sovereign debt has ballooned over the last two years.

Indeed, the interest rate is a blunt weapon against inflation. How can raising interest rates curb food or oil price increases? While supply blockages persist, essential consumer prices will rise, even with high interest rates.

Higher interest rates may even aggravate inflation as businesses cut investment spending. Thus, supply bottlenecks, especially of essential goods, are likely to be more severe, pushing up their prices.

Most people are indebted, with the poor often borrowing to smoothen consumption. Thus, the poor are hurt in many ways: losing jobs and earnings, coping with less social protection, and having to borrow at higher interest rates.

Hence, the standard medicine of higher interest rates has massive social costs. Meanwhile, the principal beneficiaries of using higher interest rates to lower inflation are rich net creditors and financial asset owners.

Toxic prescription

Premature reversal of expansionary fiscal policy has been largely due to debt hawks’ successful fear mongering. Thus, debt paranoia nipped in the bud the ‘green shoots’ of robust recovery following the 2008-2009 global financial crisis.

In the early 1980s, inflation paranoia led to interest rate spikes, triggering debt crises, stagnation and lost decades in much of the world, especially developing countries. Now, inflation hawks are poised to derail global recovery, stop adequate climate action and otherwise undermine sustainable development.

Policymakers the world over, but especially in developing countries, must reject the inflation hawks’ paranoid screeches. Instead, they must identify and address the sources, causes and nature of the inflation actually faced. And then, take appropriate measures to prevent inflation accelerating to harmful levels.

There are a host of alternative policy measures available to policymakers. They must reject the lie that they have no choice but to raise interest rates – widely recognized as a blunt weapon, with deadly ‘externalities’.

While all available policy options may involve trade-offs, policymakers must seek and achieve socially optimal results. This requires robust, resilient, green and inclusive recoveries – not fighting quixotic windmills of the paranoid mind.

Related IPS commentaries

Inflation Bogey Blocking Recovery. 19 Oct. 2021. https://www.ipsnews.net/2021/10/inflation-bogey-blocking-recovery/

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