Why Grow Something You Cannot Eat? Somebody Else Will Pay for It

A farmer with land can grow food for the household, which converts labour directly into subsistence and is reliable, or can grow something the household cannot eat and sell it, converting labour into money and then money into food and everything else. The second is more productive wherever the land suits the sold crop better than it suits food, and it allows specialisation and the gains that follow from it. It also introduces dependence on a market, on transport, on a buyer and on a price, none of which the grower controls, and on being able to buy food when it is needed at a price the sale will cover.

The characteristic risks follow from what these crops are:

• •Demand barely changes when the price does, so prices swing hard
• •Planting decisions are made a year or more before the sale
• •Everybody responds to a high price at once, producing a glut
• •Perennial crops like coffee and cocoa take years to come into bearing
• •So supply responds far too slowly to correct anything
• •The grower takes a small share of what the final consumer pays

Where a country's export earnings depend heavily on one or two such crops, the consequences reach well beyond farming. Government revenue moves with the world price, so a fall produces a budget crisis, cuts to services and borrowing, which is a pattern repeated across many countries through the twentieth century. Exchange rates move with it. Investment concentrates in the export sector and neglects everything else. And the incentive to process the crop domestically is weak, since buyers prefer the raw product and tariff structures in importing countries have historically taxed processed goods more heavily than raw ones, which is a documented barrier to moving up the chain.

Several responses to the price problem have been attempted and their records differ. Cooperatives pool output and bargain collectively, which improves terms modestly and works best where the crop must be processed locally anyway. Certification schemes offering a minimum price reach a small share of growers and the premium is frequently absorbed before it arrives. Producer agreements between exporting countries attempt to hold prices up and have collapsed repeatedly. Hedging on futures markets transfers price risk and is available mainly to larger operations. Moving into processing captures more of the final price and requires capital, skills and access to markets that tariffs have historically restricted.

Much of the present pattern was established deliberately rather than emerging from what land suited. Colonial administrations directed production towards crops their home economies wanted, through land allocation, forced labour, taxation payable only in cash, and marketing boards that bought the whole crop at a set price. Infrastructure was built to move those crops to ports rather than to connect regions to each other, which is visible on railway maps to this day. Independence inherited that structure along with the institutions, and changing it requires capital, markets and time. Diversification is the standard recommendation and is far easier to state than to achieve.

Growing to sell rather than to eat converts labour into money and introduces dependence on a price nobody local controls, and because demand barely responds while supply responds slowly, those prices swing hard. A country earning most of its foreign exchange from one or two crops takes that swing through its budget and its exchange rate. Colonial land allocation, taxation and transport built much of the present pattern.