Sunday, July 27, 2014

Redefining productivity

We are truly productive if there is more forest next year than today, if there is more fish and if the soil is more fertile by the years instead of exhausted and eroded. 

It is a bit puzzling why most agronomists and institutions to such large extent focus on yield of crops per hectare as the main measure of agriculture productivity, when in reality that is not a driving force for farmers who look more into productivity per labor unit, or if they are modern agri-business operations, productivity of capital invested. If we compare farms globally the farms with the highest yield per hectare are rarely the most competitive. European farmers have mostly much higher yields per hectare of wheat than their Argentinean, American or Australian colleagues, still they can’t compete and are dependent on support programs of the European Union, because their general cost level is higher. Similarly in the dairy sector, the world market is dominated by a country with low milk yield per cow. The dairy industry in New Zealand is still primarily built on grazing cows and the production per cow is low in an international perspective. The average production per cow in Israel was 12,500 kg in 2007, while it was less than 4,000 kg in New Zealand , but New Zealanders produce milk a lot cheaper than Israelis.

If we compare efficiency in various systems, e.g. in farming or food processing, it will in most cases show that the bigger and more technological advanced system is more competitive. But are they more efficient and productive? Often, small farms have higher yield per hectare than large farms, still large farms gradually squeeze smaller farms out of the market because of market access, possibilities for rational specialization, economies of scale, better access to credits or simply governmental policy distortions . Larger crop farms perform better financially, on average, than smaller farms. The larger farms don’t have higher revenue or yields per area unit, but they have lower costs. As expressed by the report Farm Size and the Organization of U.S. Crop Farming from USDA: “larger farms appear to be able to realize more production per unit of labor and capital. These financial advantages have persisted over time, which suggests that shifts of production to larger crop farms will likely continue in the future.” Their yield per hectare is mostly the same as on smaller farms but the research shows that farms with more than 2,000 acres spend 2.7 hours of work per acre of corn and have cost for equipment of $432, while a farmer with 100-249 acres will spend more than four times as much labor and double the amount for equipment per acre. In that limited sense the larger farms are more “efficient” or “productive”.

There are many different ways to look at farm productivity and, depending on what we measure and how we measure, we may draw different conclusions. In principle, it is the factor of which there is a shortage that will, and should, determine which factor is the most important. Farms in high-income countries are shaped by high input of energy and low input of human labor (energy). In high-income countries, there is no shortage of labor but it has been costly and therefore productivity per work-hour has been the strongest driver of change. Close to cities, or in very densely populated areas, land is scarce and farms are shaped differently by high land prices. At a certain land price, grain farming is no longer possible and farming will orient itself to higher value crops, or will become playground for the rich, golf courses or paddocks for race horses.

Economists today talk about “total factor productivity” a rather opaque measure which has a scientific air. It does sound like a good idea to combine all the factors of production in one measure. But as this is measured in monetary terms it will just value things by their market value. So if labor is 200 times more expensive in one country than in another you have to produce 200 times more per hour for the same productivity. And if water is for free, the water productivity will not be reflected at all. In this way, productivity comes to mean more or less the same as profitability and is like a circular reasoning and of little value in a big picture discussion, even if it reflects quite well what guides a modern commercial farmer.

We need to redefine productivity. But it is not enough the redefine productivity in our minds, we also need to redesign the economic system which has created this distorted view of what is productive and what is not.  Today, productivity is measured by how many trees one person can cut down with her chainsaw or how much fish a fisherman can scoop up from the sea. But as nature resources dwindle, the real productivity is how these resources re-generate. We are productive if there is more forest next year than today, if there is more fish and if the soil is more fertile by the years instead of exhausted and eroded. 

(extract from Global Eating Disorder, forthcoming)