School of Oriental & African Studies

1

School of Oriental & African Studies

Agricultural labour productivity and food prices: development

impacts and indicators12th April 2012Andrew Dorward

Centre for Development, Environment and Policy

School of Oriental and African StudiesUniversity 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


5April 2012


6April 2012


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


9April 2012

Sufficient access to capital Insufficient access to capital

Product-ion Income

Labour deman

d

Labour

supply

Product-ion Income

Labour deman

dLabour supply

Season 1 2 1 2 1 2 1 2Producers with surplus

large +++ +++ +++ na = ++ ++ ++

+ = ++ na na

small ++ ++ ++ na = + + ++ = + na NaProducers with deficits

small + ... … … = - - - - - + +

large + - na + - - -- -- na na + +

Pure consumers

na --- na ++ Na na -- -- na na ++

++


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


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


15February 2011


16April 2012


17April 2012


18April 2012


19April 2012


20April 2012


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 &

servicesincreased / 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?


knowledge, institutionsLong term impacts of high food prices?

COORDINATION processes, scale, locations, populations,

timing


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?


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


timing

AGRI-CULTURAL REVOLUT-

IONS

higher labour productivity,


increased / constant per capita ‘other’ availability

releasing labour for production of


falling ‘other’ prices relative to wages/income,

increased income available for purchase

of goods & services

Energy, materials, capital, technology, knowledge,

institutionsCOORDINATION

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


44April 2012


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, sellersLess /

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 CopeMarket

State

transparencyagricultural

R&Dinfrastructure

insurance, options

macro-economicmanagement

consistencyrules

inputsA

output marketsfinance

insurance

safety netsinstitutions

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

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