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:
- Shift to high-value export crops
- Become employed in the non-farm sector, and/or
- 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).
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 :).