Prospects for agricultural productivity growth : will there be a slowdown in developing countries?

Abstract

The food price spikes of 2008 showed that world food security is not a foregone conclusion. With this in mind, we distinguish between three productivity measures, as their implications differ. These are: yields, which, with area harvested, determine output; labour productivity, which correlates with incomes; and total factor productivity, which distinguishes between technical progress, efficiency change and input intensification. Hence TFP growth has different implications, according to its cause. The World Development Report (World Bank, 2008) distinguishes between the agriculture-based, transforming, and urbanised countries that constitute agriculture’s three worlds. The first is dominated by Sub-Saharan Africa (SSA), with much of Asia and the Middle East and North Africa (MENA) region in the transitional group, while and urbanised developing economies are mostly in Eastern and Central Europe and Latin America. We would add the developed countries (DCs) that are loosely member states of the OECD. The DCs are not the focus, but the slowing of public agricultural R&D growth in this group, plus low rates of GDP growth and possibly agricultural productivity measures, have connotations for all the others, as these countries are the initial source of scientific advances and technologies. We find a tendency for yield and labour productivity growth to slow from the mid 1980s, but TFP did not slow down in all countries. What did happen more generally, is that TFP growth was maintained by input reduction, rather than output growth, as investment in agriculture declined due to lack of profitability. This is why the supply response in 2008 was rapid, but as it was achieved by increasing modern inputs, TFP will have been reduced, although yields should have risen. There is some consensus that new technology is not being generated as it once was, but here there is a gulf between North America, where private sector GM varieties have filled the gap and Europe where they have been largely excluded. If there is less technology internationally available from the world’s leading national agricultural research stations (NARS), the effect on the urbanised countries may not be great. The Eastern and Central European countries have to long way to go to increase efficiency levels to match Northern Europe, so reorganisation matters more than technical progress. In Latin America, countries like Brazil and Argentina are industrialising and commercialising agriculture and have their own research capacity that may well increase yields as a result. They are almost certain to increase labour productivity as agriculture is mechanised and TFP should be driven by labour productivity growth. For the upper end of the transforming countries the same is true, as China and India have the research capacity to generate yield growth and the withdrawal of labour from agriculture will raise labour productivity and TFP. It is the smaller countries, with less research capacity and less industrialisation that may be at risk from productivity stagnation if they do not attract private technology providers. The agriculture-based countries range from the small failed states of SSA to countries like Kenya, which has quite reasonable research capacity. All the TFP studies show that SSA lags behind, but that productivity has been improving since the mid 1980s. The key seems to be institutions, incentives and better policy and infrastructure. It is efficiency change, rather than new technology and SSA could have reasonable growth in TFP and yields on this basis alone. A major difference between Asia and Africa is that in Asia, yield growth has been translated into increased labour productivity and better incomes. In SSA, yield increases have improved labour productivity very little, so there is a difficult question as to whether the relatively land abundant countries can follow a path of labour saving technical change. The unknowns that will determine the future course of agricultural development centre around energy and climate change. With the oil price at below $40 per barrel, the biofuels industry is not currently a problem, but once the recession is over the issue of food versus fuel will reappear. Agriculture will need to adjust to more expensive fertiliser, fuel and transport, while pushing towards sustainability and lower environmental costs. It remains to be seen how energy efficient technologies can be developed with lower public R&D growth and with many countries still avoiding any science that includes GM.