More crops and less poor in Peru

Jan writes*

Poverty is largely a rural occurrence around the world and Peru is no exception. In 2004, 40% of rural population in Peru lived in extreme poverty compared to 8% in urban areas (World Bank 2005). Improving the income of poor rural households is therefore a critical step in poverty eradication efforts. In this blogpost, I will first offer a brief overview of the current state of agriculture in Peru and the income sources of the poor rural households. Then I will point out possible trends that could increase the income of the rural poor and zoom in on the possibility of increasing productivity, explore the required steps to increase it, and assess the capacity of the poor to take such steps.

Peruvian agriculture can be divided into its main sectors: high-value export products and staple crops for domestic consumption. The high-value export products grow primarily in the Costa (coast) and also in the Selva (rainforest) and consist of crops such as coffee, mango and avocado. Peaks in prices in international markets have boosted the growth of this sector (Flachsbarth, 2018). The staple crops, on the other hand, mainly encompass potato and maize, which are grown in the Sierra (highlands) and are targeted for domestic consumption. Most poor rural households, located in the Sierra, earn their income by growing staple crops. Recent increases in prices and gains in productivity have raised the farm-income of these households and reduced poverty (Flachsbarth, 2018).

There are three possibilities that have the potential to further raise income for poor rural households:

  1. Shift to high-value export crops
  2. Become employed in the non-farm sector, and/or
  3. Raise staple crops with higher productivity.

The high prices of high-value export crops motivates poor farmers to grow more of those crops. Similarly, the rise in employment in non-farm sector, particularly in the food-processing and tourism sectors, can be a profitable source of income for the rural poor. Finally, further increases in productivity of staple crops reduce costs of production and offer higher farm incomes (Flachsbarth, 2018). I will further explore this third alternative by looking at what is necessary to increase productivity and what is the capacity of the rural poor to do it.

Conventionally, increases in productivity require the adoption of technology. This mainly refers to the adoption of improved varieties of seeds, chemical fertilizers and pesticides and machinery for harvesting, transport and storage (Dethier & Effenberger 2012). An alternative view argues that increases in productivity can result from the adoption of sustainable practices such as natural pest and weed control, organic improvements to soil health and efficient water use (Pretty et al 2002).

Picture from elEconomista, 2018 

The capacity of poor farmers to increase productivity through adoption of technology is, nonetheless, heavily constrained. They face three main challenges: insufficient education, insufficient access to financial capital, and risk-averse behaviour aimed at avoiding failures. The rural poor often lack skills and knowledge necessary to use material technology (Ruttan and Hayami 1973). Furthermore, the costs of inputs such as seeds and fertilizers tends to be high, and poor farmers may have difficulties in accessing credit sources to acquire such inputs (Rahman 1999). This problem is accentuated due to higher-than-ideal costs that result from protectionism of domestic chemical industries (which prevents international competition) and limited infrastructure networks (which raise transportation costs). Finally, poor farmers tend to shy away from adopting technology because of the risk it involves. The potential negative trade-offs of risk-taking could be starvation and loss of land (Weeks 1970). Therefore, poor farmers hesitate to adopt new technologies.

The barriers between poor farmers and new technology need to be addressed by government initiatives or collective action if productivity is to rise in Peru. Perhaps low cost, sustainable practices can help? Higher incomes can also reduce risk aversion, so it may also be useful to increase rural incomes by encouraging the shift to export products or off-farm employment

Bottom Line: Poor rural households in Peru face different opportunities to increase their income. It is necessary to identify what prevents them from harnessing those opportunities. This will allow us to propose sound policies that can assist poverty eradication.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

2 thoughts on “More crops and less poor in Peru”

  1. Dear Jan, thanks for these interesting insights and the well-structured post!
    To my mind, the point regarding risk-aversion is crucial: it seems to propel a vicious cycle that ends in a gridlock, as low income and low income security lead to risk-aversion, while risk-aversion precludes seizing opportunities for changing the poverty-determined status quo. According to my perception, such ‘microlevel reasoning’ is often not sufficiently taken into account when designing policy- and aid-interventions aimed at lifting peasants out of poverty. When operating at the margin of subsistence, peasants may prefer relativley low but certain rewards over switching to more high-yielding crops or yield-enhancing technology which are associated with higher risks. However, not allocating resources in ways that conform with the most productive use (making ‘inefficient’ decisions) is easily seen as irrational and assumptions of wealth-maximization as actors’ main motivator do not sufficiently capture the nunaced realities, potentially misguiding policies. Such market-based reasoning can be expected to yield even less accurate results when taking into accout the way prices for (technological) inputs like fertilizers are ‘artificially’ inflated in Peru. Intervention into the market by protectionist practices that limit competition shifts the market-equilibrium price. It may be interesting to notice that government intervention often follow from organization of interests: this means that ‘public sector’ interests may actually just reflect the interests of a small subset-group that effectively organizes around their cause. In Peru at the moment, this seems to be happening in the domestic chemical industry but not among the domestic farmers that suffer from the inflated prices. I wonder whether you were refering to that when mentioning collective action? On a related note, could there be a way to organize and dissipate the risks associated with adapting new costly techology? Potentially, farmers pooling their financial reosurces and knowledge on technological application would allow to start shared ‘pilot’ projects of using the new technology. Convinced by its effectiveness and equipped with the required know-how, what was previously perceived to be a risk may now be seen as a viable opportunity. What would then be needed for achieving collective action is an entreprenur that recognizes the cooperation dividend that is not yet exploited and is willing to enact it (I could imagine a commercial farmer with slightly larger land-assets that has an interest in lobbying for lower input-prices of fertilizers etc.). Alternativley, selective incentives to foster contribution and effective farmer-organization could be made part of a policy or aid-intervention: it seems like risk-aversion keeps farmers from being more vocal on their interests, so that incentives that mitigate the immediate financial pressure could be a push-factor.

  2. Interesting comment! Two points: First, I was not aware of the degree of protectionism that exists in the domestic chemical industry in Peru, but this indeed would have large repercussion on the ability of poor famrers to adopt technology and increase productivity (by increasing the price of fertilizers/pesticides). Second, there are indeed opportunities for collectivizing risks and foster the adoption of technology. As you mention, one of them is to pool resources to acquire modern inputs. Often times, nonetheless, the farmers who participate in these projects are not the poorest and indeed, they have a larger resource base than non-participants. Government policies could be implemented to promote and support the access of the poorest farmers to farmer associations.

Leave a Reply

Your email address will not be published. Required fields are marked *