Chocolate and Gold Coins

Friday, February 10, 2006

Why Farming is No Fun

A recent post on the new “The Other Half” blog raises an interesting question: “Why is farming always no fun?” Farmers around the world are always miserable. Many are poor. The rest are destitute. Why is that?

It has to do with the elasticity of demand. The demand curve always slopes downward: people buy more of something if it costs less. But demand is elastic if they buy a whole lot more of something if the price is a little less. For example, the demand for computers has been very elastic. As the price of these things has come down many more people have bought them. The computer industry is relatively fun to be in.

The market for oil is inelastic: if the price drops 10% then people aren’t going to run out and buy SUV’s just like that. So it is much better in that situation to be a monopolist and actually restrict supply. This is what OPEC does and they have lots of fun. If you face an inelastic demand for your product you want to be a monopolist and you want to reduce the quantity of your commodity that is for sale. You sell less but you make much, much more money.

Farmers face inelastic demand. That is good because otherwise the drop in farm prices would mean that people would eat 10 times as much and everyone would weigh 1000 pounds. But it means being a farmer is no fun at all. Over time, farming, like all industries, has become more productive. Farmers can produce more food from a given plot of land with less labor input than their fathers could. This has been great for consumers. This has been hellacious on farmers.

Economics would suggest that farmers should consider other lines of work. Farming is bound to be a declining industry for years to come. Fewer and fewer people will make a living off of the land, and this is good for the economy. This frees up labor to do other things. But it doesn’t do the farmer any good if he was completely unprepared to do anything else.

This was my point of my post on Fallow Minds some months ago. I felt that poverty in India could be drastically reduced if more farmers were able to retrain into skill crafts. And firms might be willing to finance this transition if the former farmer could pay back this investment out of his future earnings.

2 Comments:

  • Mike,

    Farming is also no fun because, well, it just isn't fun to do. It's long hours, dirty jobs and tedious tasks. No wonder only about 2% of Americans are in agriculture.

    My father grew up on a farm but left as soon as he could to get a college degree. He went on to be very successful in the construction business, which has its own share of job-related angst. But my dad was well known for keeping a good attitude. Whenever people asked him why he was smiling, my dad would simply reply, "Because I'm not farming."

    By Anonymous Abel, at 4:48 PM  

  • Hi Abel
    Well, I can believe that anyone who doesn't have to farm would be happy. It seems like it is a thankless job. Ofcouse, if no one farmed, we would all be in a lot of trouble. So there is a classic example of the difference between average and marginal product.

    By Blogger Michael Higgins, at 10:01 AM  

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