Is modern agriculture too risky?
In Africa, agriculture is without a doubt the most significant economic activity. It provides jobs for about two-thirds of the working population on the continent and contributes between 30 and 60 percent of each country’s GDP and 30 percent of the value of its exports. Nevertheless, just roughly 6% of Africa’s total land area is made up of arable land and land planted with permanent crops.
With the exception of nations like South Africa, Zimbabwe, and Kenya that have substantial populations of people descended from Europeans, agriculture has primarily consisted of subsistence farming and has been heavily reliant on the ineffective shifting cultivation system, which involves temporarily cultivating land using crude tools until its fertility declines and then abandoning it for a while to allow the soil to regenerate.
Peasant farmers have been granted the right to use relatively small and dispersed holdings, but arable land has traditionally been distributed throughout most of Africa through a convoluted system of communal tenure and ownership rather than through personally obtained titles. This land ownership arrangement tends to keep agricultural output at a low intensity and restrict the rate at which capital is mobilized for upgrading production.
Many nations have tried to increase productivity by utilizing tractors and other automated equipment, using higher-quality seed and planting materials, or applying more mineral fertilizers and insecticides. However, because of their relative infrequency, these actions have sparked worries about how quickly they may contribute to desertification and soil erosion.
Intensely cultivated land that was formerly shared ownership is now privately held and utilized for the production of cash crops. The continent’s agricultural systems still include a large share of low-productivity farms because crop production and animal husbandry are not integrated. Due to the traditional separation between sedentary cultivators like the Hausa in Nigeria and the Kikuyu in Kenya and their nomadic herdsmen neighbors, the Fulani and Maasai, respectively, farmers lack access to animals for draft power and manure for fertilizer over a significant portion of the continent. In many regions, the prevalence of insect pests like the tsetse fly deters mixed farming.
But meeting the demands of a fast-expanding population still requires a dramatic increase in the food supply. At institutions like the International Institute of Tropical Agriculture in Ibadan, Nigeria, intensive research has been conducted with the goal of creating crop varieties with superior performance and more suitable cropping systems. A genetically enhanced variety of corn is one outcome of this research (maize). Due to its deficiencies, in particular amino acids, maize is not a balanced food in and of itself.
However, in the middle of the 1960s, research led to the development of opaque, or high-lysine, strains of corn, which had higher levels of the amino acids tryptophan and lysine. These types had a soft texture that was undesirable, were more prone to disease and vermin, and originally generated low yields. However, breeding initiatives rectified these flaws, and the new strains started to raise the nutritional content of African diets, which mostly consist of corn preparations.
The importance of addressing challenges and risks faced by farmers
Our daily consumption of food links us to a wide worldwide network of producers, distributors, manufacturers, merchants, and many other individuals participating in the food supply chain from farm to table. The majority of us probably don’t give it much thought when we bite into a piece of bread or fruit, yet this global food system is fundamental to many of the greatest problems that mankind faces.
Present issues that the world food system is confronting
Let us begin with the most apparent one. It is anticipated that the world food system will supply wholesome food to a population projected to increase from 7.5 billion in the present to approximately 10 billion by the year 2050. Not only will there be more people to feed, but the demand for meat, fish, and dairy products will rise along with earnings in growing and developing nations.
But the food system consists of more than just the production of food. Millions of individuals also make their living from the agro-food industry. Food production is frequently the primary economic activity in rural areas, where the majority of the world’s population lives in extreme poverty. Currently, there are an estimated 570 million farms globally, and millions more people are employed in professions involving food.
The global food chain has a significant impact on the environment. Compared to other human activities, agriculture really takes up a considerably larger portion of the earth’s surface—nearly 40%.
Furthermore, 70% of the water used worldwide is used for crop irrigation, while agriculture directly produces 11% of the world’s greenhouse gas emissions (mostly from livestock). Increased greenhouse gas emissions, deforestation, and biodiversity loss are other consequences of agricultural land expansion.
Preparing the ground for the triple challenge
If we are to achieve lasting success in any of these three areas—feeding a rising population, supporting farmers, and safeguarding the environment—we must address them jointly. However, progressing on this “triple challenge” is challenging since actions taken in one area may have unforeseen repercussions in another.
Positive outcomes do occur from time to time. Increasing farm productivity, for example, can lead to increases in agricultural revenue, lower the cost of food for consumers, and, in some situations, lessen environmental stress. However, occasionally there are drawbacks that require weighing trade-offs. Policies aimed at enhancing the environmental sustainability of agriculture, for instance, may result in higher expenses for farmers and ultimately higher prices for consumers.
Put differently, approaches that focus on solving a single aspect of the triple challenge could have positive or negative synergies or trade-offs with respect to other goals; additionally, an approach that addresses a single problem could have unanticipated effects on other goals. Specific suggestions that are presented as “silver bullets” to improve the food system should cause us to proceed cautiously since they include conflicting goals, intricate relationships, and a multitude of stakeholders with a variety of concerns.
In light of these issues’ interdependence, what steps might policymakers take to solve these significant challenges? When and how should they determine whether two or more objectives clash with one another? How should they handle interested parties who could oppose a project because they think it would hurt their interests? And how should they coordinate with colleagues in other nations as well as with policymakers in other ministries or agencies?
In order to start addressing these complex issues, the OECD hosted a Global Forum on Agriculture in May 2019 to discuss the triple problem, which is now plaguing the world food system, as well as the barriers that need to be removed. It is significant because a variety of stakeholders impacted by decisions made on agro-food policy were represented in the discussion.
These stakeholders included farmers, traders, food manufacturers, consumer representatives, suppliers of agricultural inputs, researchers, environmental non-governmental organizations, and policy officials. Building on this conversation, the OECD will evaluate the primary challenges to the development of improved global food system policy and pinpoint effective solutions.
New recipes could be needed for future policies.
Good policies must balance the many goals of the triple challenge that the global food system is currently confronting, just as a good meal is balanced. Furthermore, just as the quality of the ingredients plays a major role in a well-prepared dinner, excellent policies also rely on the opinions of other stakeholders in addition to the policymaker. Given the scope and complexity of these issues, policymakers might have to try a few different approaches before coming up with a set of answers that work for everyone.
II. Risks in Modern Agriculture
A. Climate Change Challenges
1. Immediate and long-term impacts on African farmers
Africa’s agricultural growth is facing a significant challenge in the form of climate change. Food security and rural livelihoods are under further stress due to the continent’s weather systems’ growing unpredictability and irregularity. The severity of the threat posed by climate change in Africa is demonstrated by the devastation caused by the recent record floods in Burkina Faso and the protracted drought in Ethiopia on farms and residential areas.
It is anticipated that agriculture will bear a heavy financial burden from the effects of climate change. The combined impact of the food crisis and the global financial collapse has already severely hampered progress in rural development; as a result, trends in hunger and malnutrition are still persistently high. The consequences of climate change on agriculture are predicted to worsen Africa’s already dire food crisis by restricting food access and delaying efforts to increase agricultural yield unless there is a significant amount of adaptation.
Climate change’s effects on agriculture in Africa
A thorough evaluation of the anticipated impacts of climate change on agriculture in the African area may be found in the 2007 report of the Intergovernmental Panel on Climate Change. It predicts that because of the several stressors of inadequate infrastructure, poverty, and governance, Africa will be the continent most vulnerable to climate change worldwide. This century, temperatures are predicted to rise by 1.5–4 ºC. Crop revenue is predicted to decline by up to 90% by 2100, with yield decrease projections indicating a loss of up to 50%.
During El Nino episodes, the agriculture sector is also prone to protracted droughts and/or floods. By 2100, it is anticipated that agriculture will lose 2–7% of GDP in some areas of the Sahara, 2–4% and 0.4–1.3% in Western and Central Africa, and Northern and Southern Africa, respectively. The area of dry and semi-arid land might increase by 60–80 million hectares. Sea temperature variations will have a significant impact on fisheries, perhaps reducing production trends by 50–60%. ODI claims that an increase in low-potential land coverage and a decrease in the amount of arable land accessible would further erode productivity in Africa.
According to World Bank predictions, by 2080, SSA would overtake Asia as the area with the highest rate of food insecurity worldwide, home to 40–50% of undernourished people, up from 24% currently. By 2080, it is expected that there would be less arable land available for production, with 9–20% of arable land being significantly less suited for farming.
2. Declines in yields for key crops and livestock
Different regions may experience better or worse growing conditions for crops as a result of climate change. For instance, longer growing seasons are a result of variations in temperature, precipitation, and frost-free days in practically every state. For food production, a prolonged growing season can offer both advantages and disadvantages. While some farmers could be able to plant more crop cycles or longer-maturing crops, others might need to supply more irrigation over a longer, hotter growing season. Air pollution also has the potential to harm crops, trees, and plants. For instance, plants that get high levels of ground-level ozone absorb less photosynthesis, develop more slowly, and become more susceptible to disease.
Wildfire danger may potentially rise as a result of climate change. Rangelands, meadows, and farmlands are all very vulnerable to wildfires. Changes in temperature and precipitation will also probably increase the range and frequency of insects, weeds, and illnesses. This can result in a higher need for pest and weed management.
For over 100 crops cultivated in the US, pollination is essential. When pollinators, including bees and butterflies, emerge and when plants bloom, they can be influenced by temperature changes and variations in precipitation. Pollination may decline if there are discrepancies between the time pollinators emerge and when plants blossom.
3. The importance of adopting climate-smart farming practices
Climate change is a threat to agriculture. This is especially true for developing nations like Nigeria, which experience ongoing food insecurity in addition to rapid population expansion and increased susceptibility to the negative effects of climate change. By boosting food crop productivity and fostering resilience and adaptability to the effects of climate change, climate-smart agriculture (CSA) methods aim to reduce agriculture’s contribution to global warming.
CSA is a method for determining which production systems are most suited to adapt to the effects of climate change and for modifying these systems to fit local circumstances. In order to identify the primary needs, strategies, and obstacles to community-supported agriculture (CSA), this article employs descriptive statistics to characterize the socioeconomic characteristics of smallholder farmers in four states in Nigeria.
Our findings show that the average farmer is a 40-year-old guy who has been farming for 12 years, has 10 family members, and cultivates a 3-hectare area. Most farmers (87.2%) have included at least one crop feature that is resistant to climate change. Farmers’ top priorities in terms of climate-wise adaptation, mitigation, and profitability were ways to lower crop loss during the growing season (56%), boost production (54%), and increase water usage efficiency (42%).
Market Volatility
1. Fluctuations in agricultural commodity prices
The phrase “purchasing power of farm products” refers to the ratio of farm-product prices at the farm to the retail prices of goods, weighted according to the purchases made by the average farmer and their family. This index, however, differs from one showing the ratio of farmers’ incomes to retail prices because changes in net income differ from fluctuations in the exchange value of farm products.
A more reliable index would consider the ratio of farm-product prices (paid at the farm) to the retail prices of all products purchased by farmers, weighted according to their importance in the farm budget. Unfortunately, data for constructing such an index are unavailable. As a substitute, a series has been created using wholesale prices of farm products and general commodities. This “purchasing power” index represents the ratio of farm-product prices at wholesale to general-commodity wholesale prices. However, it provides only a rough indication of the quantity of products that a farmer can buy in exchange for their own products.
The upward trend of the purchasing power of farm products from 1820 to 1920, with some setbacks, is remarkable. This trend corresponds to periods of general wholesale price levels, but there’s no consistent correlation between general prices and the purchasing power of farm products.
Contrary to assumptions, the purchasing power of farm products did not decline from 1865 to 1890, a period when railroads opened up vast tracts of land. The flood of free land countered the development of manufacturing, keeping the purchasing power of farm products stable. However, when free land was exhausted, the continuous development of large-scale production and improved manufacturing processes led to a rapid rise in the purchasing power of farm products.
From 1820 to 1920, the purchasing power of farm products witnessed three subperiods with changes in the rate of increase. Notably, the trend rose rapidly from the 1820s to the Civil War, dropped in the 1860s, rose slightly from the Civil War to the Spanish-American War, and then rose considerably from the late 1890s to the end of the World War.
The purchasing power of farm products for a hundred years challenges the assumption of a decline from 1865 to 1890. Despite severe price declines in the short run, the long-term trend shows an upward movement. The causal relationship between falling general prices and a more severe decline in the prices of farm products is explained by industrial depression during such times. In periods of depression, the market for farm products is poor due to the consumption of raw materials from farms by manufacturing and the low purchasing power of wage-earners.
The production of agricultural goods doesn’t seem to follow cycles corresponding to the business cycle, unlike short-run fluctuations. Farmers, unable to control supply, find themselves in the position of residual claimants, suffering an adverse purchasing power ratio. High wage rates during a depression are argued to be favorable to farmers, but in reality, they don’t help unemployed individuals buy commodities. The widespread unemployment causes low purchasing power despite high real wage rates. In each period of heavily falling prices, the purchasing power of wages rises while the purchasing power of farm products falls.
2. Risks of mistiming markets and potential losses
The two main types of investment risk are market risk and particular (unsystematic) risk. Although it can be hedged in various ways, market risk, also known as systematic risk, cannot be completely reduced by diversification. Recessions, political unrest, interest rate fluctuations, natural catastrophes, and terrorist acts are some of the factors that might cause market risk.
Market risk, also known as systematic risk, frequently has a simultaneous impact on the whole market. Unsystematic risk, on the other hand, is exclusive to a particular business or sector. In the context of an investment portfolio, unsystematic risk, sometimes referred to as particular risk, residual risk, diversifiable risk, or nonsystematic risk, can be decreased by diversification.
Price fluctuations are the cause of market risk. Price volatility is the standard deviation of movements in the prices of stocks, currencies, or commodities. The yearly rating of volatility is stated as an absolute figure, like $10, or as a percentage of the starting value, like 10%.
Different Kinds of Risk
Investing in diversity can provide protection against specific risk, also known as unsystematic risk, which is linked to the performance of individual securities and not the general risk of the market. A corporation declaring bankruptcy and rendering its stock worthless to investors is an example of unsystematic risk. Interest rate, stock, currency, and commodity risks are the most prevalent kinds of market hazards.
- Interest rate risk is the volatility that might be associated with changes in interest rates brought about by underlying causes, such as statements by central banks on monetary policy shifts. Bonds and other fixed-income instruments are the assets for which this risk is most pertinent.
- The risk associated with fluctuating stock investment prices is known as equity risk.
- Commodity risk refers to fluctuations in the pricing of goods like corn and crude oil.
- The fluctuation in the value of one currency relative to another gives rise to currency risk, also known as exchange-rate risk. Currency risk exists for investors and businesses with assets located abroad.
Taking Stock Risk Away
However, you may reduce the impact that market risk will have on your assets and your financial health by using hedging tactics to guard against volatility. Put options, for instance, can be purchased to hedge against a decline in the value of particular stocks. Optionally, you can use index options to hedge a sizable stock portfolio.
Employ a range of these techniques to safeguard your portfolio and control market risk.
3. Empowering farmers to become market-savvy for better decision-making
C. Small-Scale Farming Challenges
1. Dominance of small-scale farms in Africa
2. Lack of economies of scale and difficulties in scaling up
3. Solutions through forming cooperatives and agricultural hubs
D. Timing and Decision-Making
1. The importance of timing in agriculture
2. Balancing risk aversion with the need for calculated gambles
3. Seeking third-party expertise and prototyping new ideas
III. Solutions to Agricultural Challenges
A. Climate Change Adaptation 1. Switching to drought- and heat-tolerant seed varieties 2. Improving irrigation access 3. Diversifying crops and income streams 4. Knowledge-sharing networks for climate adaptation
B. Market-Savvy Farming 1. Tracking long-term price trends and cycles 2. Collective marketing through co-ops for better prices 3. Reducing individual risk through collaborative efforts
C. Scaling Up Small Farms 1. Forming cooperatives and agricultural hubs 2. Joint use of machinery, storage, and infrastructure 3. Organized, efficient, and modernized systems for risk management
D. Strategic Decision-Making 1. Importance of calculated gambles in agriculture 2. Seeking third-party expertise for risk evaluation 3. Prototyping new ideas and starting small to mitigate risks
IV. Conclusion
A. Recap of the changing nature of risks in agriculture B. Encouraging farmers to embrace calculated risks and develop management skills C. Thriving in uncertain agricultural environments with patience, discipline, and calculated boldness
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