1. 1 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

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 2 April 2012

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? 3 April 2012

4. What has happened to food (grain) prices? 4 April 2012

5. What has happened to food (grain) prices? 5 April 2012

6. What has happened to food (grain) prices? 6 April 2012

7. What has happened to food (grain) prices? 7 April 2012

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 8 April 2012

9. What are the likely micro impacts of food price rises ? 9 April 2012 Sufficient access to capitalInsufficient access to capital Product -ion Income Labour demand Labour supply Product -ion Income Labour demand Labour supply Season 12121212 Producers with surplus large+++ na=++ ++ + =++na small++ na=++++=+naNa Producers with deficits small+...……=-----++ large+-na+---- na ++ Pure consumers na---na++Nana-- na ++

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 10 April 2012

11. Factors influencing likely impacts of exogenous food price increases 11 February 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 capital more surplus producers more deficit producers more wealthy consumers poorer consumers more wealthy economy less wealthy economy falling 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

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 12 April 2012

13. What are the likely macro impacts of food price rises? 13 April 2012 Fixed rate tax/ subsidyAd valorem tax/ subsidy TaxSubsidyTaxSubsidy 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

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

15. What has happened to food (grain) prices? 15 February 2011

16. What has happened to food (grain) prices? 16 April 2012

17. What has happened to food (grain) prices? 17 April 2012

18. What has happened to food (grain) prices? 18 April 2012

19. What has happened to food (grain) prices? 19 April 2012

20. What has happened to food (grain) prices? 20 April 2012

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 21 April 2012

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 22 April 2012

23. Area and Technical & institutional change 23 April 2012 Annual change Period High income (OECD) Upper middle income Lower middle income Low income World 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%

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 24 April 2012

25. 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 & services increased / 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 feedbacks Natural resource use, Waste, Environmental degradation, Biodiversity loss, Health? Inequity? ? Globalisation? Earlier(?) Positive feedbacks Capital, Technology, Knowledge, Health? Poverty reduction, Globalisation? Energy, materials, capital, technology, knowledge, institutions Long term impacts of high food prices? COORDINATION processes, scale, locations, populations, timing COORDINATION processes, scale, locations, populations, timing

26. Implications? 26 April 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?

27. Energy, materials, capital, technology, 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 COORDINATION processes, scale, locations, populations, timing AGRI- CULTURAL REVOLUT- IONS higher labour productivity, other goods & services increased / 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 COORDINATION 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?

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? 28 April 2012

29. Fundamental (long term structural) challenges need holistic indicators 29 April 2012 

30. Cereal Equivalent Productivity of Agricultural Labour (CEPAL) - value added 30 February 2011

31. Cereal Equivalent Land Yield (CELY) - value added 31 February 2011

32. 32 February 2011 Cereal Equivalent Productivity of Inorganic Fertiliser (CEPIF) - value added

33. Illustrative sustainable agricultural productivity targets (added value) 33 April 2012

34. Fundamental (long term structural) challenges need holistic indicators 34 April 2012

35. 35 April 2012 Food price measure: Food Expenditure Ratio, Decile 1 (FERD1)

36. Food price measure: Food Expenditure Ratio, Quintile 3 (FERQ3) 36 April 2012

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 37 April 2012

38. Fundamental (‘long term’ structural) challenges 38 April 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. 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 40 April 2012

41. Consumer impacts: income effect 41 April 2012

42. Producer impacts: substitution effect 42 April 2012

43. Producer impacts: profit effect 43 April 2012

44. What has happened to food (grain) prices? 44 April 2012

45. What has happened to food (grain) prices? 45 April 2012 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 46 April 2012

47. Causes of the 2008 spike? 47 April 2012 Volatility: price spikes Weather shocks Environmental changes Stakeholder stocking Financial speculation Production lags Policy changes Population growth Economic growth Higher prices Low stocks Stagnant productivity Falling supply Loss of land Biofuels Reduced subsidies Water scarcity Rising demand Oil prices Reduced R&D Oil prices Biofuels

48. What has happened to food prices? Rich buyers, sellers Less / 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 afford 48 April 2012

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 49 April 2012  Rising energy prices?  Population growth  Water scarcity?  Economic growth  Climate change impacts?

50. What to do, how, by/with who, where? 50 April 2012 Volatility: price spikes Weather shocks Environmental changes Stakeholder stocking Financial speculation Production lags Policy changes Population growth Economic growth Higher prices Low stocks Stagnant productivity Falling supply Loss of land Biofuels Reduced subsidies Water scarcity Rising demand Oil prices Reduced R&D Oil prices Biofuels

51. PreventCope Market State transparency agricultural R&D infrastructure insurance, options macro-economic management consistency rules inputs A output markets finance insurance safety nets institutions 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