Diminishing Marginal Returns in Agricultural Technology: A Case Study of India’s Green Revolution

“Everything fades” is a quote that aptly describes the economic law of Diminishing Marginal Returns.  In any endeavour, continuing to add one more unit of input will eventually result in fewer additional units of output generated.  At some point, additional output will even become negative as more input is added.  Skeptics may feel there are exceptions to this law, arguing “you can never have too much of a good thing.”  But, unfortunately, you can.  

Even income is subject to the law of diminishing marginal returns (via the similar law of diminishing marginal utility).  As one’s income rises, the pay raises will add less and less additional happiness (utility).  A worker is ecstatic to increase his income by $10,000 a year when his initial pay is $25,000.  But, is the raise still as exciting when the pay is $120,000 a year?  $250,000 a year?  Eventually, the $10,000 raise barely elicits a reaction.  And, at some point, the $10,000 raise will even be considered more of a nuisance than a benefit, with the highly-paid worker now having to figure out what to do with the money.

Economics and Crop Yields

One classic area of study in economics has been crop yields.  Crop yields, or agricultural output per unit of input, such as an acre of land, have been crucial to human development.  When economics first became a science in the late 1700s, crop yields were among the first areas of study.  Malthusian economics, created by Thomas Malthus, argued that overpopulation would doom humanity due to lack of food.  Crop yields, Malthus argued in 1798, increased more slowly than population, eventually resulting in starvation unless people reacted to economic incentives to self-reduce their propensity to have children.

While science and technology eventually proved Malthus wrong, with crop yields able to grow exponentially thanks to modern fertilizers and capital goods like tractors and automated irrigation, agriculture is still subject to the law of diminishing marginal returns.  And, while 20th century technology helped dramatically increase crop yields, there were still surprises to be discovered by scientists and farmers regarding problems to plant growth.  From the Dust Bowl in the United States in the 1930s to the Great Leap Forward in China in the late 1950s and early 1960s, crop yields proved vulnerable to unexpected stimuli. 

The Green Revolution in India

In the United States in the 1920s and in China in the 1950s, economic and technological growth helped equip farmers with new capital like tractors and irrigation systems.  However, the increased mechanization of farming did not protect crop yields from natural disasters like droughts or human errors in soil science during the Dust Bowl.  Almost thirty years later, Chinese leaders incorrectly believed that an agricultural revolution was inevitable due to collective farming, and transferred resources to industrial production instead.  The shift of resources en masse away from agriculture led to the industry’s collapse, resulting in mass starvation.

During the 1960s in India, however, the government focused on scientific analysis of crops rather than mechanization or industrialization.  Farmers were encouraged to plant specific types of seeds to grow plants that produced better crop yields, with the overall goal of reducing poverty and food insecurity in the developing country.  The period of 1947-1960 saw India - an emerging market after winning independence from Britain - suffer through agricultural problems, prompting government intervention in the market.  

The Green Revolution in India (coin termed in 1968 by the United States Agency for International Development, or USAID), influenced by the new scientific field of genetics, resulted in improved crop yields.  In addition to studying the traits of different types of cereals and grains to determine which would grow best in certain areas, farmers also benefited from advances in fertilizers.  To assist farmers, the government subsidized the purchase of fertilizers and irrigation systems, which by 1970 had led to an increase in agricultural output that outpaced population growth.  In the short term, the Green Revolution investments were a success!

Diminishing Returns in Agriculture

Although crop yields did increase in India between 1960 and 2000, critics are concerned about agriculture becoming less stable due to a decrease in biodiversity.  The variety of crops under cultivation has decreased, meaning the arrival of a new pest or disease that affects a cultivated crop will have a greater effect on the food supply.  With a reduced gene pool among crops, a disease that takes hold will harm more plants due to lack of plant varieties that would be more resistant.  

The lack of biodiversity means an increased reliance on pesticides to prevent vulnerable crops from being ravaged.  This increase in pesticide usage has caused environmental harms that can reduce crop yields, such as more illness among farm workers and more pest imbalances.  Pest imbalances, caused when some pests are affected more heavily than others, can make specific crops more vulnerable to the less-affected pests.  Disrupting the food chain by killing off too many of certain pests, and too few of other pests, can lead to rapid overpopulation of some pests that attack cultivated crops.

Another concern of the results of the Green Revolution is the significant depletion of groundwater.  Improved irrigation did help lead to rising crop yields, but now many parts of India faced water scarcity from overuse.  Combined, reduced groundwater and increased soil toxicity from fertilizer and pesticide overuse may lead to diminishing returns in agriculture by making it more difficult to continue growing crops.  Thus, the focus on short-term gains in crop yields may have hindered long-term success by polluting the natural environment.  Some argue that the costs began to outweigh the benefits beginning in the 1980s, when government price supports for farmers began to decline.

Social Costs of the Green Revolution

Farmers across India, and in other countries, did not benefit equally from research and investment in new types of crops.  This can create social costs due to unrest and political discord, especially from lower-income families that are vulnerable to large farms’ growing use of chemical fertilizers, pesticides, and local water sources.  Most farmers in India - about 85 percent - cultivate small farms and view large, commercial farms with suspicion.  

As in other countries, increased crop yields from mechanization and other innovations led to a double-edged sword: lower prices due to increased supply.  Small farmers who did not enjoy economies of scale struggled to maintain production as per-unit revenue (based on market price) declined.  This quickly led to demand for government intervention in the form of price supports (subsidies).  India implemented such a system in 1965, early in the Green Revolution, and it has been credited with stabilizing food prices…but criticized for discouraging further research and investment in agriculture science.

Because many farms in India are heavily reliant on subsidies, which are paid differently for different crops, they may overproduce subsidized crops and underproduced crops that are less subsidized, resulting in a poor mix of available foodstuffs.  Over time, this could reduce productivity across the economy through health problems, such as obesity and/or malnutrition.  In sum, improvements in agricultural technology can result in diminishing returns over time due to unintended consequences of intensive overproduction of specific crops: soil toxicity, water scarcity, vulnerable crops due to lack of biodiversity and stable food webs of pests, and tremendous stresses placed on farmers due to low market prices and government requirements to receive subsidies.