Total Factor Productivity Growth

A graphic that reads "TFP increases when outputs rise: gross crops, gross livestock."
A graphic that reads "while inputs remain constant. Land, fertilizer, machinery, labor, feed, livestock."

Agricultural productivity is not just essential for sustainably meeting the demands of a growing world.

The technologies and practices that increase productivity can also be harnessed to cultivate resilience, especially to pandemics that can strike with little warning, with catastrophic results.

Agricultural productivity, measured as Total Factor Productivity or TFP, rises when producers use technologies and production practices that generate more livestock and crops from the same amount (or less) land, labor, fertilizer, machinery, feed, and livestock. TFP increases when large numbers of producers adopt technologies and practices that use inputs more efficiently to produce additional output.

This can include precision mechanization, mobile agronomic advice, advanced seed varieties, healthier animal feed, and improved nutrient management or animal care practices.

A graphic of right facing arrows.TFP is a ratio that measure changes in how efficiently agricultural inputs (land, labor, fertilizer, feed, machinery, and livestock) are transformed into outputs (crops and livestock.)

These tools also form a foundation for improving agricultural resilience. Resilience is about more than surviving a crisis. A recent review of the literature on agricultural resilience by the Organization for Economic Co-operation and Development (OECD) outlines three capacities essential to resilience on the farm and for the agricultural system as a whole.1

  • The capacity to absorb the impact and cope with the immediate problems with minimal negative outcomes. 
  • The capacity to adapt during a crisis by changing farm or supply chain management to minimize the impacts. 
  • The capacity to transform production practices and supply chains to prevent and prepare for future crises.
Productivity-enhancing technologies and practices provide the tools, data, and know-how to absorb, adapt, and transform agricultural systems in a time of pandemics.

For example, precision technologies provide producers with real-time data that can be used to track and isolate disease outbreaks in crops or livestock. As the world’s attention turns to agricultural resilience, productivity growth needs to be at the heart of the conversation.

2020 GLOBAL AGRICULTURAL PRODUCTIVITY INDEX™ (GAP INDEX™)

Updated data from USDA Economic Research Service on productivity growth around the world, showing we are falling short of targets to sustainably meeting growing global demand for food feed, fiber, and bioenergy.  The Global Agricultural Productivity Index (GAP Index) estimates that TFP needs to increase at an average annual rate of 1.73 percent to double agricultural output levels through productivity growth (from 2010 levels.) 

The data show that globally,  we are below that target, with TFP increasing 1.63 percent per year.  Most alarmingly, the TFP growth rate in low-income countries continues it precipitous decline,  growing at just 0.58 percent annually.   This presents real challenges both for the world’s ability to produce sufficient agricultural products, but the sustainability of the production process, and the resilience of our agricultural systems.

If this trend continues, farmers in low-income, food-deficit countries (where population growth is rapidly rising) will use more land and water to increase their output, straining a natural resource base already threatened by extreme weather events and climate change.

Many low-income countries will need to import food but lack sufficient income to purchase enough to meet the needs of their citizens. Poor urban households will bear the brunt of higher food prices in these countries, but they will also impact low-income rural populations since they are net food buyers. Some of the food demand will not be met and millions of people will be debilitated by hunger and malnutrition.

Without significant increases in productivity and output, low-income countries with rapidly growing populations will not have sufficient resources to grow or import enough food for their citizens, perpetuating cycles of hunger, malnutrition, and poverty.

Furthermore, TFP is a measure of technical change, in other words, a growth occurs when more producers adopt technologies and practices that increase their output more efficiently.  Since these tools also promote resilience, as discussed above, a gap in productivity growth indicates that producers may not have the tools, knowledge, and skills they need to absorb, adapt, and transform – the three elements of resilience.

COVID-19 AND AGRICULTURAL PRODUCTIVITY

Two men standing and talking with chickens in the foreground.
Photo credit: World Bank / Sambrian Mbaabu

COVID-19 impacts on TFP growth are uncertain, nevertheless, there are areas of concern.2 Travel restrictions and health anxieties have reduced the amount of agricultural labor available. As a result, fields have gone unplanted and unharvested. Disruptions to global and local supply chains are limiting access to essential inputs, such as fertilizer, especially for smallholder farmers.

It is clear that the global unemployment crisis created by efforts to contain COVID-19 is decreasing incomes and reducing per-capita food expenditures. However, the latest Agricultural Outlook (2020–2029), predicts this will be a relatively short-term decline in demand.3

Population growth remains the primary driver of agricultural demand and the Outlook argues that the long-term trajectory of demand growth for agricultural products remains unchanged. While the rate of global population growth has slowed, the expected population in 2050 still hovers between 9 to 10 billion people. Focusing on increasing output through productivity growth remains as vital as ever, especially with the added pressures from pandemics and climate change.

UNEVEN PRODUCTIVITY GROWTH RAISES CONCERNS FOR RESILIENCE

For chronically food-insecure countries, such as India, Pakistan, and Mexico, the Green Revolution of the 1960s and 1970s, brought high-yielding seed varieties, irrigation, mechanization, and increased availability of fertilizer and crop protection products. Widespread adoption of these technologies drove a surge in food crop production that saved hundreds of millions of lives.

As agricultural technologies and practices improve, producers of all scales use their inputs more efficiently and sustainably. With precision mechanization, farmers produce more crops with less land, labor, and fertilizer. With improvements in animal genetics, veterinary medicine, and animal care practices, farmers produce more meat, milk, and eggs using less feed and fewer animals. Advanced transgenic and hybrid seed varieties include traits for pest resistance and herbicide tolerance.

Photo credit: Neil Palmer / CIAT

Best practices for nutrient and water management protect the natural resource base, while increasing crop output. As these, and other technologies have been more widely adopted, Total Factor Productivity growth has become the largest source of global agricultural output growth. Yet, TFP growth is uneven across the world, with significant implications for the resilience of our agriculture and food systems.

In high-income countries, productivity growth has been the sole source of agricultural output growth since the 1980s. Widespread adoption of advanced technologies has made these countries among the most efficient in the world. The traditional productivity powerhouses in North America and Europe have distinct advantages in times of pandemics.

Advanced seed technologies, veterinary services and animal care, and accurate agronomic and market data, make it easier to adapt in a time of crisis. Government agencies in high-income countries have infrastructures for detection, management, and eradication of pests and disease outbreaks in people, crops, and livestock. Agricultural extension networks respond in times of crisis, and robust research systems develop preventative tools that keep pandemics at bay. Access to affordable insurance and financing, as well as safety net programs, enable producers to absorb the worst financial impacts of a pandemic-scale crisis.

TFP growth in the middle-income countries is driven by a handful of countries, particularly China, India, and Brazil. Rapid adoption of improved technologies and practices, farm consolidation, and investments in agricultural research and farmer training have significantly improved productivity growth over the last few decades. While middle-income countries continue to show the highest rates of TFP growth, by country income group, growth is slowing down.

The presence of advanced technologies and strong agricultural research systems supports resilience. Nevertheless, there are significant vulnerabilities, for example, underdeveloped or inefficient infrastructures for detection, management, and eradication of pests and disease outbreaks.

Producers in low-income countries are struggling to retain productivity gains. The negative decline in TFP growth for 2011–2017, is a disturbing trend. Low-income countries are highly vulnerable to crop and livestock pests and diseases, such as fall armyworm and East Coast Fever. These emergencies are compounded by chronic problems such as prolonged internal or external conflict, and high rates of food insecurity, malnutrition, and poverty.4

The presence of multiple short-term and chronic crises complicates efforts to improve productivity growth. Agricultural research and innovation in and for low-income countries often prioritizes crisis management: seed technologies to address drought or pest outbreaks, for example. Agricultural extension and farmer training programs, which are critical for improving the productivity and resilience of producers, are significantly underfunded.

TFP TRENDS IN KEY COUNTRIES AND REGIONS (2001–2017)

Productivity growth varies widely, even within country income groups. Looking at TFP growth in key regions and countries provides an additional perspective on productivity trends.

AFRICA

Underinvestment in agricultural research and development and farmer training throughout most of the continent has left farmers with few options for increasing output.5 With limited access to productivity-enhancing technologies such as mechanization, advanced seeds, fertilizer, and improved livestock breeds and feed, farmers are expanding crop and grazing lands at an alarming rate, with negative impacts on biodiversity.

ASIA

India: With TFP growing at an average annual rate of 3.32 percent, India has benefited from significant investments in agricultural research and higher education.6 Extending and improving the country’s irrigation systems boosted productivity on already cultivated land. Increased access to mechanization services and improved seed genetics have reduced the need for agricultural labor.

China: The government has prioritized the consolidation of agricultural land, creating opportunities for greater efficiency, particularly in the wheat growing regions in northern China. Greater access to mechanization services and other inputs have reduced the amount of agricultural labor required, at all scales of production. Fertilizer use efficiency is also improving considerably.7 The TFP impact of the loss of 40 percent of swine population to African Swine Fever is uncertain but will likely be significant.

SE Asia: Increases in labor efficiency, thanks to adoption of new and improved technologies and practices has driven TFP growth in the region.8 Competition for land with urban areas has forced producers to maximize efficiency to increase output.

THE AMERICAS

North America: The rate of TFP growth in North America has slowed to one to two percent annually since the turn of the century. The slowdown coincides with reductions in public-sector agricultural research and development investments — the cornerstone of TFP growth. The technology pipeline, including CRISPR-Cas and artificial intelligence, holds the potential to provide a TFP boost in coming years. Yet, questions remain about which technologies consumers will accept.

Latin America and Caribbean: Precision agriculture, advanced seed technologies, and improved livestock management systems have driven substantial TFP growth in feed grains and livestock production in countries like Brazil. Smaller countries, such as Guatemala, are using inputs and land more efficiently in fruit and vegetable production.

EUROPE

TFP growth is seen as a conservation strategy, resulting in less land and inputs used in production, but not an increase in output growth.

Both output and TFP growth are strong in breadbaskets of the former USSR, particularly Russia and Ukraine. Following the economic reforms of the 1990s, large agro-holdings have increased efficiency by applying market-oriented agribusiness principles and practices.9

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