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School of Oriental & African Studies

School of Oriental & African Studies. ­Agricultural labour productivity and food prices: development impacts and indicators. 12 th April 2012. Andrew Dorward Centre for Development, Environment and Policy School of Oriental and African Studies University of London. Questions.

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School of Oriental & African Studies

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  1. School of Oriental & African Studies ­Agricultural labour productivity and food prices: development impacts and indicators 12th April 2012 Andrew Dorward Centre for Development, Environment and Policy School of Oriental and African Studies University of London

  2. 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

  3. 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?

  4. What has happened to food (grain) prices?

  5. What has happened to food (grain) prices?

  6. What has happened to food (grain) prices?

  7. What has happened to food (grain) prices?

  8. What are the likely micro impacts of food price rises? • Direct effects • Consumers: • Substitution effect • Income effect • Producers: • Substitution effect • ‘Cost’ or ‘profit’ effect • Producer effects may be lagged or capital constrained or damped by price volatility / risk

  9. What are the likely micro impacts of food price rises?

  10. 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

  11. Factors influencing likely impacts of exogenous food price increases

  12. 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

  13. What are the likely macro impacts of food price rises?

  14. What were / are the short term impacts of high food prices? • 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

  15. What has happened to food (grain) prices?

  16. What has happened to food (grain) prices?

  17. What has happened to food (grain) prices?

  18. What has happened to food (grain) prices?

  19. What has happened to food (grain) prices?

  20. What has happened to food (grain) prices?

  21. 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

  22. 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

  23. Area and Technical & institutional change

  24. 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 incomes • Non rival and non excludable • Global • Good • 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

  25. Energy, materials, capital, technology, knowledge, institutions Energy, materials, capital, technology, knowledge, institutions Coordination processes, scale, locations, populations, timing Long term impacts of high food prices? increased / constant per capita food availability Earlier(?) Positive feedbacks Capital, Technology, Knowledge, Health? Poverty reduction, Globalisation? higher labour productivity in food production increased income available for purchase of non food goods & services falling food prices relative to wages/income, INDUSTRIAL, SERVICE, KNOWLEDGE REVOLUTIONS releasing labour for production of other goods and services releasing labour for production of other goods & services Increased demand for & supply of non-food goods & services AGRICULTURAL REVOLUTIONS increased income available for purchase of goods & services falling ‘other’ prices relative to wages/income, higher labour productivity, other goods & services Later (?) Negative feedbacks Natural resource use, Waste, Environmental degradation, Biodiversity loss, Health? Inequity? ? Globalisation? increased / constant per capita ‘other’ availability Energy, materials, capital, technology, knowledge, institutions Coordination processes, scale, locations, populations, timing

  26. Implications? • 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?

  27. Energy, materials, capital, technology, knowledge, institutions Coordination processes, scale, locations, populations, timing Earlier(?) Positive feedbacks Capital, Technology, Knowledge, Health? Poverty reduction, Globalisation? increased / constant per capita food availability higher labour productivity in food production increased income available for purchase of non food goods & services falling food prices relative to wages/income, AGRI-CULTURAL REVOLUT-IONS releasing labour for production of other goods and services releasing labour for production of other goods & services Increased demand for & supply of non-food goods & services INDUSTRIAL, SERVICE, KNOWLEDGE REVOLUT-IONS Later (?) Negative feedbacks Natural resource use, Waste, Environmental degradation, Biodiversity loss, Health? Inequity? ? Globalisation? increased income available for purchase of goods & services falling ‘other’ prices relative to wages/income, higher labour productivity, other goods & services increased / constant per capita ‘other’ availability Energy, materials, capital, technology, knowledge, institutions Coordination processes, scale, locations, populations, timing

  28. 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?

  29. Fundamental (long term structural) challengesneed holistic indicators

  30. Cereal Equivalent Productivity of Agricultural Labour (CEPAL) - value added

  31. Cereal Equivalent Land Yield (CELY) - value added

  32. Cereal Equivalent Productivity of Inorganic Fertiliser (CEPIF) - value added

  33. Illustrative sustainable agricultural productivity targets (added value)

  34. Fundamental (long term structural) challenges need holistic indicators

  35. Food price measure: Food Expenditure Ratio, Decile 1 (FERD1)

  36. Food price measure: Food Expenditure Ratio, Quintile 3 (FERQ3)

  37. 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

  38. Fundamental (‘long term’ structural) challenges • 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/

  40. Consumer impacts: substitution effect

  41. Consumer impacts: income effect

  42. Producer impacts: substitution effect

  43. Producer impacts: profit effect

  44. What has happened to food (grain) prices?

  45. What has happened to food (grain) prices? Deflated by US CPI or stylised high food expenditure CPI?

  46. 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

  47. Causes of the 2008 spike? Policy changes Environmental changes Reduced R&D Stagnant productivity Weather shocks Reduced subsidies Water scarcity Production lags Financial speculation Falling supply Oil prices Oil prices Volatility: price spikes Higher prices Low stocks Biofuels Biofuels Loss of land Population growth Economic growth Stakeholder stocking Rising demand

  48. What has happened to food prices?

  49. 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

  50. What to do, how, by/with who, where? Policy changes Environmental changes Reduced R&D Stagnant productivity Weather shocks Reduced subsidies Water scarcity Production lags Financial speculation Falling supply Oil prices Oil prices Volatility: price spikes Higher prices Low stocks Biofuels Biofuels Loss of land Population growth Economic growth Stakeholder stocking Rising demand

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