Agriculture is a cornerstone of global efforts to end extreme poverty, promote shared prosperity, and sustainably feed an estimated 10 billion people by 2050. Growth in this sector is two to four times more effective at raising incomes among the poorest compared to other industries. Understanding the economic dynamics of agriculture is therefore crucial for ensuring its sustainability.

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Agriculture and economic development

Economic development often starts with the development of agriculture, as it is vital for supporting livelihoods by supplying food, shelter, and employment, providing raw materials for various products, and strengthening economies through trade. Approximately one-quarter of the global workforce is employed in agriculture, and in many low-to-middle-income countries, most people depend on farming as their main source of income. Therefore, agriculture plays a crucial role in driving development across rural areas, meeting the increasing demand for staple foods, agricultural commodities, and processed food in developing countries.

In the initial phases of development, agriculture contributed between one-third to one-half of the GDP and employed over two-thirds of the labour force. In agriculture-based countries, agriculture can make up as much as 50% of the GDP, while in urbanizing nations, this share drops to around 20% and in developed countries, it falls to less than 10%. This decline is due to the growing dynamism of other economic sectors, particularly the service sector, as countries develop. The contribution of agriculture to development can be measured through its forward and backward linkages with other sectors, which include the economic activities generated as products move along the supply chain to final consumers, such as manufacturing, processing, and machinery. Mark Davis, Director for Agricultural and Regulatory Outreach at the University of Edinburgh, explained “Agriculture is hugely important in many parts of the world, especially in lower-income countries where it’s often the main economic driver. Though often overtaken by services in urbanized nations, the role of farmers remains essential for community livelihoods and employment. Agriculture supports not just those directly involved, but entire families and communities built around rural production systems.”

The output of agriculture, spanning from raw materials to its impact on the global supply chain and economic growth, is indispensable for both business and society. A thriving agricultural economy contributes to social advancement by enhancing productivity, employment opportunities, and income levels. Sustainable economic development further supports social progress by including marginalized groups, youth, and the unemployed.

Barriers to growth

Nowadays, farmers face the challenge of adapting to the evolving demands of our planet, regulators, consumers, food processors, and retailers. These demands include mounting pressures stemming from climate change, soil erosion, biodiversity loss, as well as shifts in consumer preferences towards food production methods and sustainability concerns.

Modern agriculture offers many solutions, but outcomes vary due to each farmer’s unique circumstances, such as different landscapes, soil types, available technology, and potential yields. Moreover, farmers face complex business decisions influenced by global economic factors, such as fluctuating commodity prices and trade conditions. The unpredictability of weather patterns, pest infestations, and diseases can also significantly impact harvests, adding further challenges to agricultural operations.

Furthermore, farmer’s incomes and productivity have stagnated, and the adoption of new technologies is slow. Smart and precision farming technologies use digital advancements to minimize the environmental impact while simultaneously boosting productivity and incomes. However, a critical issue is the insufficient investment that could enhance productivity and raise farmer’s incomes. Encouraging farmers to innovate and invest in production requires implementing effective policies and directing appropriate investments.

As pointed out by Ederson Augusto Zanetti, Forest Engineer and Environmental Journalist, Medium and small landholders face high costs to enter the market and rely heavily on supportive policies for accessing credit and new technologies. Effective policies can scale up technology access for smallholders, fostering logistics and financial support crucial for sustainable agricultural practices.” On average, women comprise 43% of the agricultural labour force in developing countries. However, they produce 20 to 30% less than men, primarily due to facing dual forms of exclusion – as smallholder farmers and as women. Addressing these disparities could boost agricultural output and potentially reduce global hunger by up to 17%. In addition, smallholder farmers often lack access to market information, hindering their ability to make informed decisions about crop selection, pricing, and market timing.

Jean-Christophe Duchier, Agronomist and Consultant for the United Nations (World Bank, FAO, IFAD), mentioned “Market integration is essential for smallholders, providing them with the cash flow they need to meet basic needs. However, they face numerous market failures due to limited aggregation, which reduces their competitiveness. Additionally, smallholders often lack capital, increasing their risk aversion to adopting innovations because of uncertainty about their impact. To overcome these challenges and support their market integration – in addition to support for aggregation – mechanisms such as dedicated financial support and insurance are needed to mitigate risk and encourage sustainable practices. Integrating smallholders into the market would increase their earnings, making it easier for them to invest in new agricultural practices and adapt to changes.” The upcoming challenge is to craft policies that effectively enhance productivity, support value-added agriculture, diversify incomes and products in rural regions, and foster market-oriented approaches. This requires dedicating additional public resources, which should be justified by a comprehensive understanding and valuation of agriculture.

Moving forward

In conclusion, agriculture faces the triple challenge of feeding a growing population, conserving natural resources, and sustaining rural livelihood. Achieving resilient, sustainable, and productive agriculture and food systems requires embracing innovation. Qingfeng Zhang, Senior Director for Agriculture, Food, Nature, and Rural Development Sector Office at the Asian Development Bank (ADB), stated Technological advancements are imperative for economic viability and resilience of agriculture sector. Digitalization plays an increasingly important role in technological advancements in agriculture as they can be applied in agricultural supply chain management, logistic services, marketing, precision agriculture, and factory farming. Government expenditure is one of the key policy instruments and it is important to increase the budget allocation towards programs that promote sustainable agriculture practices and technological innovations.” The new Common Agriculture Policy presents an opportunity to support farmers adopting smart agriculture practices through incentives for smart farming investments.

Persistent challenges such as low prices, market volatility, and severe climatic events continue to strain agriculture worldwide. The OECD has developed tools to evaluate agricultural performance in terms of productivity, sustainability, and resilience, guiding effective policymaking. As mentioned by Gretel Gambarelli, Senior Manager Food and Forest Finance at the World Business Council for Sustainable Development (WBCSD), Aligning private and public incentives towards sustainability is crucial for meaningful change. As companies lead efforts in promoting regenerative agriculture through incentives, it’s essential that public policies mirror these goals. Ultimately, sharing the costs of sustainability fairly across the supply chain—from farmers to consumers—ensures collective commitment. This collaborative approach not only fosters consumer trust but also accelerates the shift towards environmentally sound practices and healthier food choices globally.”

Effective policies are imperative to address immediate pressures and pave the way for sustainable, inclusive growth in agriculture. These policies must prioritize meeting future good demands while safeguarding our environment, considering the entire agricultural value chain. By embracing innovation and implementing robust policies, we can overcome these barriers and build a resilient agriculture sector capable of sustaining economic development and meeting the needs of present and future generations.