Chapter 2: Accelerating Sustainable Productivity Growth

New modeling on the impact of climate change on productivity suggests that the GAP Index target of 1.73 percent average annual TFP growth could be the minimum threshold to meet growing demand sustainably.  Human-caused climate change has slowed global agricultural productivity growth by 21 percent since 1961. (Ortiz-Bobea et al., 2021) That is the equivalent of losing the last seven years of global productivity gains.

Farmers in low-income countries are the most vulnerable to climate change, given their minimal access to technologies and agronomic knowledge that could help them adapt to the increasingly extreme weather and climate conditions. In drier regions of Africa and Latin America, climate change has slowed productivity growth by as much as 34 percent. 

Agricultural productivity growth is becoming more sensitive to climate changes over time.  Accelerating investments in agricultural R&D to increase and preserve productivity gains is urgently needed, especially for small-scale farmers.

The Benefits of Sustainable Agricultural Productivity Growth

Global initiatives such as the UN Food Systems Summit seek to make agricultural systems more sustainable and resilient. For all of the ideas and excitement created by these endeavors, the fact remains that nothing has transformed agriculture more than productivity growth.

At the start of the twentieth century, producers opened up new land for cultivation and grazing to increase their output. Then in the 1960s, the Green Revolution gave millions of farmers access to effective pesticides, fertilizer, and irrigation, sharply increasing output and preventing mass starvation.

Over time, improved technologies and practices enabled producers to use their land and inputs more efficiently. By the 1990s, global agricultural productivity growth was the primary driver of global agricultural output growth (Figure 4.)

Figure 4: Global Sources of Agricultural Growth, 1961–2019

For the past 60 years, agricultural productivity has been driven by an economy-wide structural transformation in industrialized countries (Figure 5.) (Jayne et al., 2020)

A consistent flow of improved machinery, seeds, irrigation, crop nutrient and protection products, animal genetics and feed, and agronomic knowledge enabled producers to optimize their productivity, increasing their output using less land and fewer inputs per hectare.

Workers left the farm for employment in other industries, supporting growth in the manufacturing and service sectors and the knowledge economy. Wellfunctioning markets for agricultural inputs and output incentivized producers to invest in their operations. Productivity gains at the farm level benefited consumers with a reduction of real agricultural prices. (Fuglie et al., 2012)

Figure 5: Sources of Agricultural Growth, Industrialized Countries, 1961–2019

US AGRICULTURAL PRODUCTIVITY BENEFITS CONSUMERS

The United States is the clearest example of structural transformation driving productivity growth. TFP has been the primary source of US agricultural growth for decades. Agricultural output in 2017 is nearly three times what it was in 1948. At the same time, input use grew by only 0.07 percent annually, due mainly to increasing labor productivity. As the adoption of advanced mechanization soared, farms employed less agricultural labor. Today, less than 2 percent of the US population is actively involved in agricultural production (Figure 6.)

US consumers have benefited from sustained and robust productivity growth in the form of low food prices. In 2020, US consumers spent just 8.6 percent of their disposable personal income on food, sharply declining from 2019.

COVID lockdowns and social distancing protocols meant Americans had more disposable income. At-home food consumption rose as families spent months confined at home, cooking for themselves. Conversely, the amount of food consumed away from home declined due to restaurants, universities, schools, and other institutions being closed temporarily or permanently.

Figure 6: U.S. Agricultural Output, Inputs, and Total Factor Productivity, 1948–2017

CLIMATE CHANGE AND EXTREME WEATHER EVENTS THREATEN CROP YIELDS AND TPF GROWTH IN THE US

US farmers enjoy a steady pipeline of innovation and agronomic knowledge, a bulwark against the worst impacts of rising temperatures and water scarcity. A more significant threat comes from the increasing frequency and intensity of extreme weather events attributed to changing climate patterns.

Researchers at USDA ERS modeled a climate-change scenario with an average temperature increase of 2 degrees Celsius and a 2.5 cm decrease in average annual precipitation. (Ling Wang et al., 2019) The impact on TFP varies across the country. Louisiana, Mississippi, Missouri, Florida, North Dakota, and Oklahoma would be hit hard by changes in temperature and rainfall.

Figure 7: Percentage Change in US Field Crop Production, Averaged Across Climate Scenarios, 2020–2080

TFP GROWTH IN EUROPE OUTPACES AGRICULTURAL OUTPUT GROWTH

Productivity growth can yield different outcomes.In the US, TFP growth has enabled American farmers to increase the output of safe, affordable food sold to consumers worldwide (Figure 6.)

By contrast, agricultural productivity in the European Union has consistently outpaced the growth rates for crop, livestock, and aquaculture production (Figure 8.) In the 2000s, TFP grew by a healthy 1.36 percent annually, but there was negative agricultural output growth. Farmers took land and other inputs out of production, with the goal of increasing sustainability and preserving the natural resource base.

Figure 8: Grow Rates for TFP, Inputs, and Output in the European Union, 2001–10 and 2011–19

The Farm to Fork policy currently being debated by the EU focuses on the amount and type of inputs used in agricultural production. If implemented, the policy would reduce the use of fertilizer (20 percent), pesticides (50 percent), antimicrobials for livestock (50 percent), and agricultural land (10 percent) in a single decade (2020 to 2030). (Beckman et al., 2021)

According to USDA ERS, agricultural output in the EU could decline by 12 percent if these targets are met. (Beckman et al., 2021) If the world were to adopt similar targets for reducing agricultural inputs, global agricultural output would decrease by 11 percent.

Reducing agricultural inputs from production may not be sufficient to achieve the EU’s sustainability goals, and it threatens Europe’s standing as a global breadbasket. The example of the US is that a focus on productivity growth — using agricultural inputs wisely and efficiently — can enhance sustainability while feeding the world. (Fuglie & Hitaj, 2019)

CHINA, TRANSITION COUNTRIES, AND EMERGING FARMERS DRIVE GLOBAL TFP GROWTH IN THE TWENTY-FIRST CENTURY

In the past 20 years, China and the Transition Countries (former USSR and Central Europe) have contributed significantly to global TFP growth (Figure 9.)

In China, TFP growth was under 1 percent in the 1970s. Transition Countries were experiencing negative TFP growth as recently as the 1990s.

It is encouraging to see that market-driven policy changes have sparked a TFP transformation in these countries. Yet history shows that these reforms have a shelf life. Once these changes are integrated into the agricultural sector, TFP growth settles down.

Figure 9: Impact of China and Transition Countries on Global TFP Growth, 2001–2019

China is a case in point. China’s TFP growth averaged 2.48 percent from 2001 to 2010, falling to 1.61 percent from 2011–2019. The next challenge for countries is maintaining a steady rate of growth through continued policy improvements and investments in agricultural R&D.

Sub-Saharan Africa is a cautionary tale in this regard. Policy reforms in the 1980s and 1990s generated respectable TFP growth, but with minimal investments in agricultural R&D, the region has been unable to sustain or improve TFP growth. The most recent data show that the region is experiencing negative TFP growth (Figure 10.)

Regions that have invested in the success of emerging farmers (market-oriented, cultivating five to 20 hectares) have made significant strides in TFP growth, including South Asia and Southeast Asia. Sub-Saharan Africa has a small but active population of emerging farmers. They have the most potential for productivity growth but urgently need access to a variety of improved technologies and agronomic information.

Figure 10: Sources of Agricultural Growth: Key Regions, 2011–2019

Chapter 1: The Case for Productivity

Chapter 3: An Enabling Environment for Productivity Growth