A Framework for Thinking about Agriculture

Why build a framework for thinking about strategies and practices in agriculture?

As the population of the earth continues to grow it becomes more important to think broadly about the impact of decisions impacting agriculture, and the risks associated with those decisions. In order to structure that thinking I believe it is valuable to develop an overarching framework to compare decisions and analyses, which is what I hope to do with this article.

At its simplest one could make the argument that agriculture should work to feed people, provide income to producers, while minimizing negative impacts to the environment. However, if you take that argument to its extreme I think you quickly get to a place where everyone would be growing and consuming similarly efficient and nutritive things. While that would likely optimize for the framework above I believe that food is a cornerstone of many diverse cultural identities which would be negatively impacted by standardization. The fact that market decisions can both positively and negatively impact outcomes makes weighing recommendations more difficult, but also makes for an interesting problem to solve.

That said, my proposed framework for thinking about strategies and practices in agriculture is how those decisions impact:

Feeding Humanity + Cultural Identity + Utility Gained by Consumers + Profit for Producers – Risk ± Externalities.

Some aspects of the framework are relatively easy to measure, like how well the system is feeding humanity, while others are impossible to measure precisely and difficult to know the long-term impacts of, like risk or externalities. One of the easiest aspects to measure is the profits made by producers, and I would argue that factor has been the major driver of decision-making in modern agriculture. I believe this has led to both positive and negative outcomes. For instance, automation of production has increased the efficiency of food production lowering costs for consumers, and making it possible for more people to meet their nutritional needs, but it also tends to rely on monoculture (single crops covering large areas) which likely increases risk in the system as humanity becomes more reliant on a less diverse set of crops and animals.

It is also likely that the coefficients, or importance, of each aspect in the framework changes depending on the levels of the other aspects of the framework. For instance, if externalities, like air or water pollution, are relatively low, but there are a large number of people going hungry there is likely room to optimize the system by accepting higher levels of pollution to ensure food security for more people. That said, as the amount of negative externalities increase the perceived value of marginal cultural identity or producer profits would likely be impacted.

There are also systemic factors that can push agriculture away from a design that would optimize for the proposed framework. These include, but I am sure are not limited to, a concentration of both suppliers and producers, the short-term focus of investors, and markets inability to account for externalities.

A short discussion of risk in agriculture

One example of this is the use of chemical pesticides and fertilizers. While the use of these chemicals has increased the efficiency of food production it has likely come at the cost of the long-term health of farm workers as well as consumers. A study by the National Cancer Institute found that while farmers are generally healthier than the broader population they had elevated incidences of lymphoma, leukemia, and a multitude of cancers. Also, as Mark Bittman called out, we tend to allow the use of chemicals in agriculture either because we are not certain that they cause cancer or because we are not willing to disrupt production to reduce risk.

Some more examples where I believe we have focused on near-term returns at the cost of risk to the system are monoculture crop growth, and standardization of crop types. The New Yorker ran a great article a couple of years ago on bananas and a fungus that threatens them which now seems prescient as we are facing a shortage of this crop. There are 1000s of varieties of bananas, but more than 99% of exported bananas are of a single variety, the Cavendish. The Cavendish is great for export because it ripens slowly and doesn’t bruise easily making it ideal for long(ish) voyages to your grocer. However, a fungus called Tropical Race Four has been decimating Cavendish banana crops across the world, and since the system is reliant on a single variety there just is not enough variety for banana stocks to rebound.

A more frightening example of the risks of reducing the diversity of the genetics in people’s diets is the Great Famine in Ireland in the mid-1800s. There were a number of factors that led to a dependence on the potato crop by the Irish people, but when a blight decimated the potato crop the impact on individuals and the country were extreme. Scholars believe that 500,000 – 1,500,000 died as a result of the famine, and another 1,000,000 emigrated, mainly to North America. Historians also view this event as a watershed moment that led to Irish Republicanism, and may have contributed to later turmoil and the eventual independence of Ireland.

Consolidation of the industry

I believe that one of the main reasons we have ended up where we are is that the industry has consolidated to a point where the focus on near-term profits dominates most offerings. This is likely due to investors skewing their focus to near-term results as well markets typically pricing in the effects of externalities when they become apparent, rather than when they are “accrued”.

The consolidation in the industry can be seen in the graphs below highlighting the four-firm and eight-firm concentration (i.e. how much of global sales are concentrated at the top 4 or 8 firms), as well as the growth in sales for the industry as a whole vs. the growth in sales at the top four firms by size.

Source: USDA, Economic Research Service

Source: USDA, Economic Research Service

As you can see the largest firms in agriculture have consolidated control over much of the industry which likely drives some of the issues highlighted above. This is likely to remain the case as sales growth is concentrated at the largest firms, albeit mainly due to acquisitions.

My goal is to continue to expand on this framework and develop an understanding of where there is leverage against the different components of this framework. By gathering and developing information on these topics it is my hope that a constructive discussion can be had in the industry, and that agriculture can continue to develop to better meet the world’s needs. In order to do so I would like to get as much input and feedback on this way of thinking as I can to help inform my thinking, and where I should dig deeper.