1 school of oriental & african studies agricultural labour productivity and food prices:...
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1
School of Oriental & African Studies
Agricultural labour productivity and food prices: development
impacts and indicators12th April 2012
Andrew DorwardCentre for Development, Environment and
PolicySchool of Oriental and African Studies
University of London
Questions What are the impacts of the food price spikes?
What are food prices? What are the likely micro & macro impacts of food
price changes? What has happened to food prices? What have been the short term impacts of food price
spikes? What are the long term impacts? What are the implications of this?
What indicators can we use to better reflect/ monitor these impacts?
Agricultural development Food price impacts
2April 2012
What are food prices?
Measures of value relative to consumer incomes & other goods and services consumed
Measures of value relative to producer incomes, other commodities produced by food producers, and inputs used in production (land, labour, energy, capital items)
Standard measurement problematic when relative values of different comparators change over time
What are the critical comparators?Prices of other consumer goods (which
consumers)?Consumer incomes (which consumers)?Prices of producer inputs?Prices of alternative products?
3April 2012
What has happened to food (grain) prices?
4April 2012
What has happened to food (grain) prices?
5April 2012
What has happened to food (grain) prices?
6April 2012
What has happened to food (grain) prices?
7April 2012
What are the likely micro impacts of food price rises?
Direct effects Consumers:
Substitution effectIncome effect
Producers:Substitution effect‘Cost’ or ‘profit’ effectProducer effects may be lagged or capital
constrained or damped by price volatility / risk
8April 2012
What are the likely micro impacts of food price rises?
9April 2012
Sufficient access to capital
Insufficient access to capital
Product-ion
IncomeLabour deman
d
Labour
supply
Product-ion
IncomeLabour deman
d
Labour supply
Season 1 2 1 2 1 2 1 2
Producers with surplus
large +++ +++ +++ na =++
+++++
=++
na na
small ++ ++ ++ na = + + ++ = + na Na
Producers with deficits
small + ... … … = - - - - - + +
large + - na + - - -- -- na na + +
Pure consumers
na --- na ++ Na na -- -- na na++
++
What are the likely micro impacts of food price rises?
Indirect effects – linkages Consumers (negative)
expenditure linkages Producers (positive)
expenditure linkages upstream linkages - labour, inputs, land
10April 2012
Factors influencing likely impacts of exogenous food price increases
11February 2011
Positive impacts of high food prices: increased real incomes & reduced poverty
Negative impacts of high food prices:
reduced real incomes & increased poverty
more access to capital less access to capitalmore surplus producers more deficit producersmore wealthy consumers poorer consumersmore wealthy economy less wealthy economyfalling input (eg fertiliser)
prices
rising input (eg fertiliser) prices
low price volatility high price volatility
Good & bad impacts multiplied by strong linkages in the economy and by strong price transmission from external
markets
What are the likely micro impacts of food price rises?
Indeterminate, but … high price volatility reduces benefits of high prices to surplus
producers without benefits to deficit producers or consumers improved producer access to seasonal capital improves benefits
to surplus & deficit producers without harming consumers more equitable land and income distribution likely to reduce
negative effects & promote positive effects of high prices: with more equitable land distribution
benefits to surplus producers more widely distributed in the economy
production responses likely to be more labour & less capital intensive (promoting labour demand to benefit land poor farmers & landless labourers wage incomes);
more equitable income distribution among consumers means fewer very poor consumers
12April 2012
What are the likely macro impacts of food price rises?
13April 2012
Fixed rate tax/ subsidy
Ad valorem tax/ subsidy
Tax Subsidy Tax Subsidy
Importing country
Some reduction in tax income if increased price reduces demand
Some reduction in subsidy cost if increased price reduces demand
Increase in tax income per tonne imported but some reduction in imports
Increase in subsidy per tonne imported but some reduction in imports
Exporting country
Some increase in tax income if increased price increases supply
Some increase in subsidy cost if increased price increases supply
Increase in tax income per tonne exported and also in tonnes exported
Increase in subsidy cost per tonne exported and also in tonnes exported
What were / are the short term impacts of high food prices?
14April 2012
Modelling / simulations (‘hunger’ and ‘poverty’ estimates) High food prices good for producers of food - farmers … But bad for food buying producers …
Poverty impacts Hunger impacts Malnutrition impacts
But not so bad after allowing for wage impacts??? Field studies
High prices bad for both rural & urban poor Poverty, hunger, malnutrition education ….
Gallup Welfare Poll: self reported food insecurity (Headey) High food prices increase it, economic growth reduces it Increased food insecurity in Africa Decreased food insecurity in Asia Lower global increase in food insecurity than FAO/WB
What has happened to food (grain) prices?
15February 2011
What has happened to food (grain) prices?
16April 2012
What has happened to food (grain) prices?
17April 2012
What has happened to food (grain) prices?
18April 2012
What has happened to food (grain) prices?
19April 2012
What has happened to food (grain) prices?
20April 2012
What has happened to food (grain) prices?
Fallen relative to expenditure baskets of consumers with growing incomes
Constant relative to expenditure baskets of poor consumers
Fallen relative to incomes of consumers with growing incomes (!!)
Constant / lower fall relative to incomes of poor consumers
No clear trend relative to other agricultural commodities Wide fluctuations but general fall relative to oil and
fertiliser prices
21April 2012
Long term drivers of food price changes
Context of growing populations with growing grain consumption per person in growing economies
Increased demand counteracted by Area change Technical & institutional change
22April 2012
Area and Technical & institutional change
23April 2012
Annual change
Period High income (OECD)
Upper middle income
Lower middle income
Low incom
eWorld
Cereal land
1961-2009
-0.08% 0.77% 0.79% 1.63% 0.65%
Arable land
1961-2008
-0.09% 1.77% 0.65% 0.95% 0.60%
Cereal land
2000-2009
-0.28% 0.49% 0.53% 2.43% 0.55%
Arable land
2000-2008
-0.46% -0.12% 0.25% 1.22% -0.02%
Cereal yield
1961-2009
1.90% 2.30% 2.04% 0.96% 1.85%
2000-2009
1.43% 1.73% 1.60% 1.18% 1.38%
Technical, institutional & structural change
Innovation driven by production incentives with high food prices, depressed by low food prices?
Low food prices relative to incomes are a global public good that require globally coordinated public investment by national governments
Low food prices relative to incomesNon rival and non excludableGlobalGood
High prices immediate harm with long term effects on individual & hence national welfare & development
Low food prices relative to incomes the basis for economic growth, development and wider processes of structural change
24April 2012
increased / constant per capita food availability
releasing labour for production of other goods and services
falling food prices relative to wages/income,
increased income available for purchase of non food goods &
services
higher labour productivity in
food production
Energy, materials, capital, technology,
knowledge, institutions
AGRICULTURAL REVOLUTIONS higher labour
productivity, other goods &
services
increased / constant per capita ‘other’ availability
releasing labour for production of
other goods & services
falling ‘other’ prices relative to wages/income,
increased income available for purchase
of goods & services
Energy, materials, capital, technology, knowledge,
institutions
INDUSTRIAL, SERVICE,
KNOWLEDGE REVOLUTIONS
Increased demand for & supply of non-food goods
& services
Later (?) Negative feedbacksNatural resource use,Waste, Environmental
degradation, Biodiversity loss, Health? Inequity? ?
Globalisation?
Earlier(?) Positive feedbacksCapital, Technology,
Knowledge, Health? Poverty reduction, Globalisation?
Energy, materials, capital, technology,
knowledge, institutionsLong term impacts of high food prices?
COORDINATION processes, scale, locations, populations,
timing
COORDINATION processes, scale, locations, populations,
timing
Implications?
26April 2012
High food prices relative to income are bad for the poor in both the short and long term,
Increasing food or food equivalent productivity of agricultural workers is critical for low food prices, food security & development
Small farm development (increasing their aggregate productivity of labour & land) is normally a critical but temporary stage in this
What does this mean for agricultural development policies with
Climate change? Environmental / resource threats? Growing food demand by rising, more affluent population? Climate change mitigation? Environmental / resource threat mitigation?
Energy, materials, capital, technology,
knowledge, institutions
higher labour productivity in
food production
increased / constant per capita food availability
releasing labour for production of other goods and services
falling food prices relative to wages/income,
increased income available for purchase of non food goods &
services
COORDINATION processes, scale, locations, populations,
timing
AGRI-CULTURAL REVOLUT-
IONS
higher labour productivity,
other goods & services
increased / constant per capita ‘other’ availability
releasing labour for production of
other goods & services
falling ‘other’ prices relative to wages/income,
increased income available for purchase
of goods & services
Energy, materials, capital, technology, knowledge,
institutions
COORDINATION processes, scale, locations, populations,
timing
INDUSTRIAL, SERVICE, KNOWLEDGE REVOLUT-
IONS
Increased demand for & supply of non-food goods
& services
Later (?) Negative feedbacks
Natural resource use,Waste, Environmental
degradation, Biodiversity loss, Health? Inequity? ?
Globalisation?
Earlier(?) Positive feedbacks
Capital, Technology, Knowledge, Health? Poverty reduction,
Globalisation?
Conclusions We need to pay attention to
different relative food price changes for poor/ rich consumers and producers
the short / medium term poverty and food insecurity impacts of high food prices
the long term developmental impacts of high food prices
Short term impacts are serious but can be ameliorated by economic growth
Long term undermining of growth is particularly worrying and challenging and demand a rethink of current development models
Smallholder agriculture offers critical but temporary and challenging opportunities
How can we simultaneously raise agricultural labour force productivity and agricultural yields and reduce energy and material inputs?
28April 2012
Fundamental (long term structural) challengesneed holistic indicators
29April 2012
Cereal Equivalent Productivity of Agricultural Labour (CEPAL) - value
added
30February 2011
Cereal Equivalent Land Yield (CELY) - value added
31February 2011
32February 2011
Cereal Equivalent Productivity of Inorganic Fertiliser (CEPIF) - value
added
Illustrative sustainable agricultural productivity targets (added value)
33April 2012
Fundamental (long term structural) challenges need holistic indicators
34April 2012
35April 2012
Food price measure: Food Expenditure Ratio, Decile 1 (FERD1)
Food price measure: Food Expenditure Ratio, Quintile 3 (FERQ3)
36April 2012
Explanations for extreme values Costs of calorific requirements calculated with
international not national grain prices. Index grain weights determined by relative international
not national production and consumption patterns,. In poor agrarian economies with significant numbers of
poor food deficit producers, a substantial proportion of calorific requirements may be own produce not purchased, reducing vulnerability to price increases (though capital constraints and hungry periods may still make them very vulnerable to price increases)
Poor people do reduce their FER with damaging ‘coping’ responses - switches from more diverse diets, reduced intake of more nutritious food, borrowing, drawing on savings, asset sales, withdrawal from school, etc.,
First decile consumption share estimates in SSA may be too low
37April 2012
Fundamental (‘long term’ structural) challenges
38April 2012
Raise agricultural labour productivity in poor countries Maintain / increase yields per ha Increase yields per unit energy and material inputs Lower food prices for the poor Improve targets and indicators (post 2015 IDGs) Extend analysis to include water & energy use/
productivity, land rights/ access, micro nutrients …..
Reduce inefficiency Reduce waste Reduce consumption of inefficient (grain
consuming) livestock products Work together to take climate change, environment,
justice seriously in in all sectors & in our lifestyles Seriously question all development models
39
School of Oriental & African Studies
Dorward, A.R. (2012). The short and medium term impacts of rises in staple food prices. Working paper http://eprints.soas.ac.uk/13478/
Dorward, A.R. (2012). Agricultural labour productivity and food prices: fundamental development impacts and indicators. Working paper,. http://eprints.soas.ac.uk/13483/
Consumer impacts: substitution effect
40April 2012
Consumer impacts: income effect
41April 2012
Producer impacts: substitution effect
42April 2012
Producer impacts: profit effect
43April 2012
What has happened to food (grain) prices?
44April 2012
What has happened to food (grain) prices?
45April 2012
Deflated by US CPI or stylised high food expenditure CPI?
Messages We need to pay attention to
different relative food price changes for poor/ rich consumers and producers
the short / medium term poverty and food insecurity impacts of high food prices
the long term developmental impacts of high food prices
Short term impacts are serious but can be ameliorated by economic growth
Long term undermining of growth is particularly worrying and challenging and demand a rethink of current development models
How can we simultaneously raise agricultural labour force productivity and agricultural yields and reduce energy and material inputs?
Smallholder agriculture offers critical but temporary and challenging opportunities
46April 2012
Causes of the 2008 spike?
April 2012
Volatility: price
spikes
Weather shocks
Environmental changes
Stakeholder
stocking
Financial speculati
on
Production lags
Policy changes
Population growth
Economic growth
Higher prices Low
stocks
Stagnant productivi
ty
Falling supply
Loss of
land
Biofuels
Reduced subsidie
sWater scarcit
y
Rising deman
d
Oil prices
Reduced R&D
Oil prices
Biofuels
What has happened to food prices?
Rich buyers, sellers
Less / emerging
poor (buyers & sellers)
Poor (net buyers)
Long term trend
Decline relative to income, due to labour productivity increases
from energy substitution & technical
change
Always high relative to
income
Short term spike
More expensive relative to other goods and services, relative to
inputs
More expensive relative to
income, more difficult to
afford48April 2012
What is going to happen?
Impacts on labour productivity, incomes, equity, economies, food security, food stocks, price variability?
Implications for international policies: Increase stocks
Raise supply - productivity Whose productivity where?What constraints? Low productivity traps, price tight ropes?What policies, what technologies?
Reduce demand? Manage risk
49April 2012
Rising energy prices? Population growth Water scarcity? Economic growth
Climate change impacts?
What to do, how, by/with who, where?
April 2012
Volatility: price
spikes
Weather shocks
Environmental changes
Stakeholder
stocking
Financial speculati
on
Production lags
Policy changes
Population growth
Economic growth
Higher prices Low
stocks
Stagnant productivi
ty
Falling supply
Loss of
land
Biofuels
Reduced subsidie
sWater scarcit
y
Rising deman
d
Oil prices
Reduced R&D
Oil prices
Biofuels
Prevent Cope
Market
State
transparencyagricultural
R&Dinfrastructure
insurance, options
macro-economicmanagement
consistency
rules
inputsA
output markets
finance
insurance
safety nets
institutions
DC
B
Notes: Work in progress - stylised contents & location, instruments extend across & contribute to both prevention & coping; roles & providers differ between contexts (eg poor, less poor economies) & between levels (eg farm, national, regional, international) - especially for finance & insurance. Politicians are critical! Civil society?
What to do, how, by/with who, where?
finance