Lilyan E. Fulginiti ProfessorDepartment of Agricultural Economics
Food Security Wake-up: 2007-2008: “Perfect Food Security Storm”• Crude oil reached $145/bbl (July 08)• Growing demand for food in India and China• Unfavorable weather in Russia and Australia Prices of food commodities spiked upward (2008)
2008-2011: Cheap Food Again?• The great price crash, July- Dec 2008: – Oil: $133 to $40 (-70%) – Corn: $5.47 to $4.11 (-25%)• But crop prices remain 50% above 1990-2000, …so? Focus away from spikes towards trends
The World Food Equation Prices adjust so that:Demand for Food = Supply of Food More People More Inputs Higher incomes Higher Productivity (= Higher efficiency+ New technologies)
1950-2000: “The Age of Abundance”Demand increases less than Supply increasesReal Prices of Food Commodities Decreased
1950-2000: “The Age of Abundance” World net agricultural production 1,800 1,600 1,400 1,200billion dollars 1,000 800 600 400 200 0 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 World Developed countries Developing countries
1950-2000: “The Age of Abundance” Real Price of Soybeans, Wheat, and Corn
Questions for the next half-century:•What will be the growth rate in demand for agricultural output?UNL is working on this•Can that growth rate in supply be sustained while protecting the environment?UNL is working on this
At what rate will demand increase through 2050? Source of demand growth LDC’s DC’s World population - annual growth rate 0.8% 0.08% 0.7% income - annual growth rate 5.2% 1.6% 2.9% (0.6%) biofuels – annual growth rate from 36 3.8% m ha in 2009 (2.5% of arable land) (0.001%) total rate of increase ~1.3 % Annual growth rate Increase by 2050 0.7% 32% 1.0% 49% 1.3% 68% 1.5% 81%
The Sources of Increased Food Supply:• More inputs: more land more water more labor, chemicals, machinery• More productivity from inputs: land productivity = yield = output ÷ acres total factor productivity = output index ÷ input index
What are the prospects for more inputs? Labor, chemicals, machinery: supplies are elastic distribution may be an issue Land, water: supplies are inelastic
Reasons for caution about land and water expansion• Ecological impacts of land conversions – biodiversity – fragile ecosystems• Land use and climate change (IPCC) – Conversion of forests and savannas release CO2 ~10 % of anthropogenic GHG emissions• Water problems (IWMI) – many river basins poorly managed, and overcommitted – Groundwater levels are declining rapidly in densely populated areas of North Africa, North China, India, and Mexico – Water management institutions have been slow to build or change capacity and adapt to new issues and conditions – Climate is changing
Given this caution …to grow output by 1.3% per year, we must continue to rely on what brought the age of abundance: PRODUCTIVITY GAINS the other source of growth in agricultural output What is the rate relative to the 1.3% need?
Multifactor Productivity Measures (MFP or TFP) TFP growth is the difference: GTFP = GOutputs - GInputsProductivity Growth = (actual production growth) - (production growth if no change in technology or efficiency)
Agricultural Productivity Growth in Western Europe 1973-2003 (11 country aggregate) 60% increase vs. 75% increase for US350300 Labor productivity Total factor productivity250200150100 50 1973 1978 1983 1988 1993 1998 2003
Agricultural TFP in EU and US1.2 1 be dk0.8 de gr es fr0.6 ie it nl0.4 se uk US0.2 0
Agricultural Productivity Growth in LDC’sResearch at UNL has examined: – Sub-Sahara Africa: 46 countries, 1961-2006 – South America: 10 countries, 1972-2006 – Central America: 14 countries, 1980-2006 – China: 30 provinces, 1993-2005
Average TFP Growth Rates SSA Regions 1.4 1961-2006 (%) 1.2 1 0.8 0.6 0.4 0.2 0 East Africa Southern Africa West Africa Central Africa TFP % (1961-1989) TFP % (1989-2006)Source: Kibonge, A. and L. Fulginiti, “Institutions and Agricultural Productivity Growth in Sub-Sahara Africa?”, Presented at the AAEA meetings,Pittsburgh, July 2011.
TFP growth rate South America 1972-2006 (%)3.5 32.5 21.5 10.5 0 Argentina Chile Brazil Peru Ecuador Venezuela Uruguay Bolivia Colombia Paraguay-0.5 1972-1989 1990-2006 Source: Trindade, F and L. Fulginiti, "Is there a Slowdown in Agricultural Productivity Growth in South America?”, Dept. of Agricultural Economics, University of Nebraska, Lincoln, 2010.
TFP Growth Rate Central America and Caribbean 1980-2006 (%)43210-1-2-3-4 1980-1989 1990-2006
TFP growth rates Chinese Regions, 1993-2005 (%) 6 5 4 3 2 1 0 EAST CENTRAL WESTSource: Tong, H., L. Fulginiti and J. Sesmero, “Agricultural Productivity in China: National and Regional Growth Patterns, 1993-2005,” in Fuglie, K. et al.,editors. Productivity Growth in Agriculture: An International Perspective. Oxfordshire, UK: CAB International (forthcoming).
TFP growth rates Chinese Provinces, 1993-2005 (%)876543210 Tibet Guangxi Xinjiang Qinghai Ningxia Inner mongolia Tianjing National Mean Hainan Fujian Gansu Hebei Beijing Anhui Jiangxi Liaoning Shanghai Shaanxi Shanxi Jilin Hubei Jiangsu Guangdong Zhejiang Shandong Henan Heilongjiang Yunnan Hunan Sichuan-1-2Source: Tong, H., L. Fulginiti and J. Sesmero, “Agricultural Productivity in China: National and Regional Growth Patterns, 1993-2005,” in Fuglie, K. et al.,editors. Productivity Growth in Agriculture: An International Perspective. Oxfordshire, UK: CAB International (forthcoming).
What factors affect differences in TFP rates?• Irrigation• Roads and other infrastructure• Education and Health Expenditures• Public Expenditures in Agriculture• Policies• Civil Liberties and Political Rights• Colonial Heritage• Years since regime change• Conflicts
TFP growth rates 1990 on, compared to 1.3%US: 1.57 ↓EU: 1.53 ↓Canada: 1.4% ↓Australia: 0.7% ↓China: 3.2% ↑South America: 2.5% ↑CA and the Caribbean: 1.5% ↑SSA: 1.09% ↑
Can the rate of growth of the last 50 years be sustained? Evidence of slowdown in DC’sRoom for higher rates of growth in some LDC’s BUT more intensive use of resources INNOVATIONS = R&D
ERS, derived from OECD, Eurostat and ASTI data
Source: Fuglie et al. (unpublished, in preparation)
Internal Rates of Return, US Ag R&D, 1949-1991, % (straight green line average return S&P500) 40 35 30 25 20 15 10 5 0 GA NC TX NJ NE IA TN NV NM ND NH NY IL WI IN OK WY LA WA PA MI ID SD OH MN KS MS MO CO KY AR MT AZ OR AL VA SC WV ME FL VT MD DE MA RI UT CA CTSource: Plastina, A. and L. Fulginiti, “Internal Rates of Return to Agricultural R&D in 48 US States,” Journal of Productivity Analysis, (forthcoming).
USDA Forecast of U.S. Ag Productivity to 2050 - Based on Research at UNLSource: USDA Economic Brief 17, July 2011, forecast based on Wang, L., E. Balll, L. Fulginiti, and A. Plastina: “Benefits of Public R&D in U.S. Agriculture:Spill-ins, Extension, and Roads,” in Fuglie, K. et al., editors. Productivity Growth in Agriculture: An International Perspective. Oxfordshire, UK: CABInternational (forthcoming).
• Most TFP growth rates above 1.3%• Slowdown in productivity growth in DC’s• Slowdown in agricultural R&D investments• LDC’s TFP growing but limited R&D capacity• Spillovers from rich to poor countries?• Sustainable agricultural productivity growth?