Food systems around the world provide livelihoods for millions of people in farming and other segments of the value chain. There are an estimated 570 million farms worldwide, with the vast majority (500 million) smaller than 2 hectares. As countries develop, employment in agriculture falls and labour moves to other sectors, but these are often still food-related, such as food manufacturing, logistics, distribution and retail. Even in developed countries, food-related activities are important: food and beverage manufacturing accounts for more than nine million jobs in OECD countries. In other words, the importance of food systems for livelihoods is much wider than agriculture alone.
International trade and participation in global value chains (GVCs) are important drivers of agricultural employment and incomes around the world. Trade directly or indirectly accounts for around one-fifth of agricultural labour income globally. This includes both the direct effect of agricultural trade, and the indirect effect of trade in products which rely on agriculture. Countries do not necessarily need to move into food processing to generate higher value-added: OECD analysis has shown that participation in international trade and GVCs (i.e. through the export of primary products) can generate at least as much domestic value added as a strategy which relies on domestic processing.
Technical and structural change – as well as the disruptions caused by COVID-19 – are putting significant pressures on livelihoods of small agricultural producers. Over the last few decades, productivity growth has led to a decline in agricultural commodity prices. While consumers around the world have reaped large benefits from lower food prices, the same trend has also put pressure on small producers. Over time, higher productivity means that fewer people are needed in agriculture. Millions of people have left agriculture for jobs in other sectors. For those with a good education, the transition has frequently offered a large improvement in earning potential. But the process of adjustment has been far from seamless. It has involved stresses too, with less competitive farmers struggling to compete, and cases of distress migration from the fields to urban centres.
Policies need to enable people to take advantage of the rising opportunities offered by agricultural development, but also protect those who are unable to do so. In other words, forward-looking policies should acknowledge structural change and facilitate adjustment. Farmers can adjust along different pathways: those who stay in agriculture should become more efficient or diversify their income sources (both within and outside agriculture); others should find opportunities outside agriculture. Policies should focus on investments in human capital and infrastructure which improve households’ opportunities, without biasing decisions on whether to remain in farming or not. Investments in innovation can help those who stay in agriculture to become more efficient and produce more sustainably.
However, existing policies focus mostly on supporting farm incomes rather than investing in an enabling environment. Across the 54 countries covered by the OECD Agricultural Policy Monitoring and Evaluation 2020 report, total support to agriculture was more than USD 700 billion per year in 2017-19. But only a small share of this total goes to general services such as R&D or infrastructure. Instead, the bulk of support tries to raise farm revenues through higher prices, subsidies, or direct payments. This ‘farm-biased’ support weakens the incentives for farmers to diversify their income sources or leave the sector. It also reduces resilience and slows down productivity growth, in addition to contributing to environmental problems.
By contrast, investments in building a strong agricultural knowledge and innovation system can make food systems more productive, more sustainable, and more resilient.
Similarly, even though agriculture often plays an important role in rural areas, it is a mistake to equate rural well-being with agriculture alone. Rural areas – especially remote areas far removed from cities – face numerous challenges, with OECD analysis indicating that these regions tend to have lower productivity, lower employment, and lower incomes. In many countries, rural development is considered the responsibility of the agriculture ministry. Yet the most powerful strategies to improve rural well-being focus on raising the productivity of rural areas through investments in skills, digitisation, innovation, and internationalisation of small and medium-size enterprises, and on delivering strong public services.