LFarmers work a lot, without counting their hours; they ensure an essential production for society, food; yet, they have very low incomes. How is it possible ?
However, they are not exploited by anyone. They are entrepreneurs, who operate in individual businesses or small family-type companies. Their income is the profit generated by their business. How can we understand that an active, often innovative entrepreneur, who produces to meet real demand, is nevertheless unable to make a living from his work?
In addition to the relevant causes regularly put forward (price formation, CAP subsidy policy), it is necessary to point out a factor more rarely discussed. Farmers operate in an environment that requires them to produce ever more. However, as entrepreneurs, this is not necessarily in their interest. From the point of view of economic science, the goal of a producer is not, in fact, to maximize his production, but to maximize his profit. And it’s not the same thing at all.
The farmer is only one link in an economic chain, with, upstream, actors who sell him what to produce (buildings, machines, fertilizers, phytosanitary products) and, downstream, actors who buy his production to transform and market it (cooperative, food industry, mass distribution). However, everyone encourages him to produce more. And everyone has an interest in the farmer producing more.
Feeding on the beast
Upstream, because, to produce more, the farmer must invest in larger buildings, larger machines, more productive breeds and seeds, use more fertilizer, buy more feed, which is as much income for those who provide these goods. These investments must be financed by borrowing, therefore paying the bank; insure these investments, therefore pay the insurer…
Downstream, the companies that collect, transform and distribute agricultural raw materials have large national and international markets in which to sell their production: the more farmers produce, the cheaper the agricultural raw materials are, and the more they can sell in quantity and make profit. Everyone therefore seems to benefit from an increase in the farmer’s production.
Everyone ? From a strictly economic point of view, it is not always in the interest of the producer himself to produce more. For a simple reason: beyond a certain size, the costs caused by an increase in production exceed the benefits that can be expected from this growth. This is the classic reasoning introduced by so-called “marginalist” economists: to know if it is in his interest to increase his production, the entrepreneur compares the increase in costs that this generates with the additional revenue that he hopes to obtain. And there inevitably comes a time when it is no longer in the producer’s interest to grow…
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