Saturday, August 18, 2012

Agricultural income vs. Industrial income

I have often wondered why Agricultural incomes are less than industrial incomes. Following are some of the reasons:

  1. Agricultural incomes are not as tradable as industrial incomes because 
    1. they are tied to the land, corresponding weather and topographical externalities and therefore limited by its productive constraints. Other industries have freedom to migrate to better assets with higher productivity.
    2. they have low spatial availability as compared to industrial opportunities that are clustered. Thus geographically, agriculture is at disadvantage.
  2. Agriculture has been around for longer than industrialism thus it has gone through various stages of productivity development and now the labour component is stabilized. As industry will go through with similar development cycle the wages will taper off.
  3. The agricultural produce forms part of inflation basket and central banks make sure the value of basket does not grow rapidly thus capping the incomes from agriculture.
  4. Industrial products are more globalized and specialized as compared to agricultural products. The demand for agricultural products depends on tastes and those are more tuned with local produce. Only staple foods are truly globalized. The perishable nature of the products also prevents wider distribution of the products. No so for industrial products.