Recent spikes in global food prices have garnered much attention, as they did when prices spiked in the early 1970s. But much less policy attention has been placed on the longer-run trends in commodity prices.

Will food prices revert to a downward trend as they did after the 1970 spikes? Or is the era of ever-cheaper food a thing of the past? The food security of poor people the world over – and the standard-of-living of G20 consumers – rests on the answer to this fundamental question.

This post is adapted from an essay commissioned for the briefing book for the G20 Cannes Summit 2011.
Download a PDF (this article appears on page 192).

G20 Cannes Summit 2011 Briefing BookThe future path of food prices and the capacity of the world to affordably feed future populations hinges heavily on the agricultural productivity of the G20 countries. G20 countries employ two thirds of the world’s agricultural labor force, account for 58 percent of the global land devoted to agriculture, and in 2008 produced 69 percent of the world’s agricultural output by value. They produce 75 percent of the world’s food and feed staples (wheat, rice, maize and soybeans), 65 percent of its milk and 71 percent of the world’s beef, sheep and poultry. The G20 countries also dominate international trade in agricultural commodities, which helps to shore up country shortfalls in production due to weather and other factors and dampen fluctuations in global commodity prices.

Eliminating hunger and meeting an ever-growing global demand for food, feed and biofuels is a basic demand and supply problem. If the growth in global agricultural production fails to keep pace with world’s appetite, agricultural commodity prices will rise. Estimates put the world’s population at 7 billion people by 2012; 9 billion by 2050. And as global per capita incomes grow, each of these people will likely consume more food. All told, analysts anticipate a 70 percent increase in demand for food by 2040, compared with the year 2000.

Can We Do It?

There are two ways to meet this growth in food demand. One is to plow more land into agriculture. The other is to increase crops yields and agricultural productivity. Both will be necessary. But increasing agricultural productivity will be crucial to sustainably securing food supplies in the decades ahead, as most prime agricultural land is already in production. In most G20 countries, in fact, the challenge will be preserving the land already in production from urban and infrastructure encroachment and environmental degradation.

So, how have the G20 countries been faring, and what are the prospects for productivity growth going forward? Unfortunately, for many countries, recent and prospective productivity performances are wanting. The rate of growth in crop yields has slowed in the past 20-30 years for the world as a whole, compared with previous decades. Similar patterns are evident for other measures, such as agricultural labor productivity in most G20 countries. The rate of multi-factor productivity (MFP) growth (indicating the rate of growth of aggregate output relative to the rate of growth of all measureable inputs, including land, labor, capital, energy and fertilizer) has also slowed dramatically in the higher-income G20 countries for which reliable measures are available. In the United States for example, MFP grew at almost two percent per year from 1950 to 1990, but since then has grown at barely half that rate.

By contrast, for some other important agricultural producers like China and the former Soviet Union, growth in crop yields and other productivity measures has either been sustained or has recovered of late. However, for these countries it is hard to tell the difference between sustained growth and growth that is really episodic in nature – spurred, for example, by massive institutional reforms.

Why has agricultural productivity growth slowed? It’s complicated, but one factor stands out as a prime culprit: Almost all the higher-income G20 countries have for decades being scaling back their growth in public investments in agricultural research. The United States, for example, increased its inflation-adjusted public expenditures in agricultural R&D by 3.5 percent per year during the 1950s and 1960s; since 2000 is has grown by just 1.4 percent per year. Australia, France, and the United Kingdom, among others, have followed suit. Many of these countries have also expanded the scope of agricultural research to address a host of new policy issues (e.g., food nutrition, obesity, biosecurity, and environmental matters) at the expense of research on farm productivity. Moreover, as climate continues to change and plant pests continue to co-evolve with new crop varieties introduced by farmers, a significant share of research is required to simply maintain past productivity gains.

What’s Needed?

Turning around lackluster productivity trends will mean revitalizing spending on farm productivity research. The pervasive slowdown in productivity growth over the past two decades was preceded by many years of slowing public spending. It typically takes decades to develop and diffuse new agricultural technologies, so long lags between changes in research spending and changes in productivity growth are to be expected. China, as a rare positive example, has continued to ramp up spending on agricultural research and is a standout among G20 countries in terms of sustaining growth in the productivity performance of its agricultural sector.

Some suggest that the scaling back in public support will be countered by an upsurge in private funding. The facts do not support this notion. While the private share of agricultural R&D has crept up over the decades, in more recent years private agricultural R&D growth slowed in tandem with public spending. To be sure, corn yields have sustained their growth over recent years; this crop has notably received substantial amounts of private R&D attention. But it is an exceptional crop in many technical and intellectual property respects; and does not speak to the general prospects for private R&D, where it is hard to imagine firms anticipating sufficient returns to farm-oriented R&D to justify substantially ramping up their investments, at least in the near term, and especially in many developing countries were market and regulatory conditions limit the commercialization prospects for privately produced technologies.

Moreover, in the higher-income G20 countries more than 60 percent of private agricultural R&D is focused on food processing, where the market and intellectual property realties are more conducive to reaping the profits that drive private investments in innovation. And, as in the health sciences, all forms of private food and agricultural R&D stand firmly on the shoulders of basic discoveries made with publicly funded research by universities and government agencies. Taken together, these pervasive commercialization problems mean that private markets will tend to underinvest in agricultural R&D.

Since it is hard to imagine present productivity trends can be revived without increased spending on agricultural R&D, it boils down to a set of public policy decisions: Will G20 countries play their part in sustainably ending global hunger in the decades to come, while also promoting continued prosperity in their own agricultural sectors? Reinvigorating public spending on R&D to ensure a sustained stream of new technologies and knowhow is one critical step; getting these technologies into the hands of farmers is another. Regulatory reforms that lower the costs of managing and mitigating risks associated with the new technologies that spur farm productivity growth will also play their part.