Agriculture productivity the driver for feeding the world

Improvement in productivity is still the driver for longer-term food prices. A recent USDA study in the September issue of Amber Waves shows some of the significant benefits farmers have developed to feed the world. Inflation adjusted agriculture prices are down. They have been in a downtrend for a century. There is no food shortage even with a significant upswing in population growth. There have been swing in the price of ag commodities but the trend has not been broken. 

The reason for the continued downtrend can be broken into four parts. Land expansion is a small part. Irrigation is also a small part. The majority has fallen between greater use of inputs such as fertilizer, labor, capital and productivity. Of the last two, input intensification and factor productivity, it is total factor productivity that has been the most important driver over the last two decades,yet productivity is often hard to forecast and model. There is a innovation component that cannot be guaranteed. Total factor productivity (TFP) is the sum of all inputs for a the production of a crop versus the total output. Crop yield improvements have been steady at between 2- 2.5%. It is taking us less resources to gain those yields.

There is also a differential between developed and emerging economies with food production. Emerging markets in South America have been using more land for production which has improved output, but the amount of land that can be used in the US is constrained. To get more output, there has to be  higher productivity. That goal has been reached over the last few decades, but there may be a limit on the amount of improvement.

The improvement in TFP will be the driver for higher prices in the agriculture sector. With current low inventory to use, the risk of a tail event or failure is higher and TFP may not bail the food system out.