Lectures 23-25

Growth in World Agr. Production

- increase in food supply= 2.3% (more than population=2.1%) Sources of Growth: 1) new land- intensification, new lands brought into productivity= more food 2) input intensification- high yield, irrigation, pesticides; more intensive agriculture through use of inputs 3) increased Total Factor Productivity (TFP): ratio of total commodity output to total inputs use in production (output/input= more efficiency); utilize less inputs for more yield (ex. precision farming)

The Case of Norway

-small country, strong democracy, low corruption, media scrutiny, strong legal system & accountable bureaucracy -impressive growth & wealth from oil discovered in 1960s (began to decline in amt. in 2000s) -social contract is central to strategy: oil wealth would be spread equally among citizens & govt. of today and future

The paradox of plenty

-"God gave us maize and the devil gave us oil" (Mexican proverb) -AKA the 'resource curse'- states are highly dependent upon export of resources are not better off -symptoms: wealth, slow growth, high poverty, poor governance, weak states, revolution & conflict -graph shows economic growth declines with % of exports of resources growing

Food prices & land acquisition

-27-30 million hectares of transnational land acquired during 2008 food price spike; large scale acquisition of land for agriculture is good (kick-start development; foreign entity buys land and leases land to farmers leading to steady & higher incomes)

Causes of Global food price rise

-Historically: agricultural commodity prices declined 1% per year until spike in early 2000s -demand and supply curve for food is relatively 'inelastic' (large changes in price barely affect quantity demanded/supplied)-- people always need food & to increase takes time -Causes of early 2000s spike: oil & food prices are closely linked 1) oil prices- agriculture is oil-intensive (to make & transport); as oil prices increase, farmers make bio-fuels which lead to displacement of food as primary purpose of agricultural activities. (ex. corn-based ethanol shifts from 15 to 40% in oil crisis) 2) adverse weather: droughts & heat waves devastate agricultural supply 3) trade shocks: when food prices rise, it leads to panic among populace leading to: bans of exports, hoarding and panic buying

Trends in Growth

-NEW LANDS leads to INTENSIFICATION leads to PRODUCTIVITY -over time, area expansion decreases, input intensification highest during 60s-80s and then TFP in 90s-2000s

economic windfalls of 'resource curse'

-boom and bust cycles: resources that state can easily appropriate, and often state-owned; production costs are low compared to value of resource; generate rents -de-industrialization -inflation & overvalued exchange rates -withering agricultural sector

The Case of Nigeria

-larger country, history of dictatorship & weak institutions -oil discovered in 1960s and economy is highly dependent on oil, but weak growth & dissipation of wealth (brought vast amts. but avg. citizen gets little and less through time)- poverty actually increases as more money enters state -Options: 1) sovereign wealth fund: created in 2011 with $1 billion, but led to discontent among local govts.; the issue is that management must be beyond politics (ex. Hugo Chavez spent his states sovereign wealth fund) 2) transparency & accountability: greater transparency will lead to greater accountability (ex. EITI Extractive Industries Transparency Initiative but still difficult to attain transparency) 3) direct distribution mechanisms (Oil2Cash) unconditional v. conditional cash transfers- resource rents distributed to the population, but this rent in taxed which is then used on infrastructure; politicians reliant on these taxes which makes them accountable to tax payers; but problem is that it is too difficult to pull off, as govt. wants the rents -Pre-Oil...

World Agr. Trade

-most crops are not traded (less than 20%) due to: 1. tariffs, quotas and quality standards -heavy subsidies of domestic agriculture in core economies; for natl. security; political power to farmers leads to overproduction -underinvestment in developing countries leading to underproduction-- trade protection is expensive and carried by developing states 2. food is difficult to transport 3. Freer Trade in Agricultural Commodities- SOHA Trade Negotiations (2001)- essentially stalled over agricultural free-trade; food security & sovereignty is supposed cost of free-trade in agriculture.

Dutch Disease

-natural gas discovered near the Netherlands, however manufacturing/agricultural withered while nat. gas boomed -symptoms: booming resource sector leads to inflation and currency appreciation (overvalued) which leads to withering of manufacturing and agricultural sector (which find it hard to compete with imported goods higher exchange rates) and human capital pulled into resource boom and non-tradable sector (real estate) -boom dynamics: correlation between resource exports and value of currency (inflation & deflation) -economic causes: distorting of economy around boom sector, further accentuated by state/private investment into boom sector- makes economy more vulnerable to bust: 1) boom v. non-boom sector- boom sector flourishes at expense of non-boom sector 2) tradable v. non-tradable: non-tradable forms around boom sector 3)resource allocation effect: shifting of capital/labor into boom sector and non-tradable sector around it 4) spending effect- more money means people spend more, but as currency has appreciated-- spend on imports rather than domestic goods (investment in non-tradable sector that surrounds boom) -ex. Case of Amazon Rubber Boom: wild rubber brought in huge revenues, but in 1910s the price fell due to growing domesticated rubber from Asia-- economy created around rubber was highly fragile (built around rubber & non-tradable) thus, fall of rubber prices leads to bust (& permanent scare- no ones going to buy house in formerly boom town, now bust)

causes cont.

-rent-seeking, patronage, and 'living off the land': economic rents attractive to all which lead to rent-seeking behaviour (rents are difference between production cost and nominal returns) -political economy of rent-seeking, through formal licensing agreements, or illegal bribes; the sector is highly lucrative and draws people in which stifles regular entrepreneurship & can even provoke conflict over resource rents -overconsumption: living off the capital derived from oil, many politicians in resource-rich states must appease rent-seekers, thus spread the wealth in order to preserve power. -under-investment: underinvestment in human capital as resource rents are spend on patronage rather than investment -Taxation: wealth comes from resource wealth not human capital.

Concerns (land acquisition)

-rich countries take land from poor & vulnerable (i.e. largest land bought in states with weakest land governance) A. food security in food-insecure regions (best lands are bought up by firms); poor follow-through, as firms just buy land and lock it up- peasant ethos of access to land as their life source & firms focus on non-food crops B. employment opportunities are limited, large-scale agriculture is mechanized and does not require lots of labour (loss of smallholder farming) C. water grabbing with land, grabbed area of land correlates to large number of total grabbed water

Drivers of food demand

1) population increase: leads to increased demand for food 2) dietary transitions: shift from Tubers & Coarse Grains to Cereals (as incomes increase, shift away from potato to rice & wheat); shift from plant-based to animal products (livestock revolutions- 40% of global population by 2050 will base diet off animal products- as income rises, more animal) 3) change in food retailing: how/what food is sold & standards of quality-- advent of supermarket= Latin America saw onset of supermarkets and saw increase of quantity & quality & decrease in prices

Norwegian Strategy

1) sovereign wealth fund: fund which collects oil revenue, worth $1 trillion; money is invested overseas rather than domestic to protect from inflation (govt. can only take 4% from fun which cannot be spent on oil) 2) high taxation of oil profits: 78% tax on oil firms, and strong state control of oil resources which carefully controls oil extraction through careful management 3) collective and transparent wage negotiation via government: labour wanted in boom and leads to collective and transparent wage negotiations 4) protection of manufacturing sector: invested in human capital (ex. engineering); Norway invested in manufacturing sector related to oil, thus innovation protected.

Consequences of food price spike

1) undernourishment & impoverishment: Engels law (amt. spent on food is generally constant; for those in poverty, food=45-50% of expenditures) 2) food riots & revolt: there is correlation between what prices are and social unrest; leads to fall of govt. in Haiti & Madagascar (in Tunisia, protestors initially waved loaves of bread) 3) Greater policy attention: renewed policy interest in supply-side of food and agriculture in order to expand yield requires constant r&d-- spike in food prices is currently over, but matter of time before another

5 Challenges for global agriculture

1. Crop yields and closing the yield gap- growth in crop yields peaking, need to produce 2.3% growth per year -Yield increase of major crops falling to 30-70%, no more doubling of yield possible -Yield Gaps: difference between attained yield and potential yield; ex. avg. yield gap in Sub-Saharan Africa=80% - Available land v. Yield Gaps -Causes of Yield Gap- prices, risk, insufficient know-how, insufficient capital; often geographically specific and contingent, must compare yield gap in similar area/state

Why shift to large farms?

1. Economies of production and processing- bigger farms better able to compete, able to attain certification and meet standards -Efficient use of Machinery, Quick Processing, Demanding Product Standards 2. Easier Access to Credit and Insurance- large firm can attain loans at half the rate of smaller 3. New Crops are Expensive- GMOs require special inputs & investment 4. Lack of Local Available Labor: focus put on capital-intensive farming 5. Public Policy Bias: the state prefers to deal with small number of large farmers; big farm firms lobby for favourable govt. policies to massive farms (v. smaller)

Drivers of Global Land Rush

1. High Food Prices: spike in 2008 lead to increased number of suppliers 2. Competing Land Uses & Scarcity: increasing competition= increasing fear of scarcity (ex. 450 million hectares of land available= 1/3 of total crop land today) 3. Low Returns on Other Investments: land is good investment compared to others (i.e. stocks= volatile) 4. Land= Good Investment: traditional a hedge against inflation (land tends to keep ahead of other sectors), provides income & appreciation (crops & rent), returns not correlated with equity markets (stock market is volatile, but price of land is separate), farmland prices rising (appreciation of farmland exceeds commercial & residential) 5. Speculation: farmland considered low-risk, high return rate & high potential of growth

What's being done?

1. Land purchase restrictions: often on foreign land acquisitions, ignore role of nationals 2. strengthen land governance and better managed land-investments: land registration is slow, leading to situation in which there's little land rights in DC 3. Guidelines for Best Practices: greater transparency in land sale systems, ethical guidelines, greater state influence on land governance, block-chain land sales (+level playing field for family/smallholder farms to be able to compete)

Geography of Land Acquisition

1. Media Reports v. inventories: press reports tend to exaggerate land sales, actual inventory is much smaller or not known 2. International Land Coalition's Land Matrix: matrix which tracks land-holding across the globe 3. Africa as focus for large-scale acquisitions: 2/3 of all reported land acquisitions occurred in Africa, the rest in Asia and Latin America - purposes of acquisition: 34% food production, 26% non-food crops, 23% flex crops, 17% multi-use

Main Actors

1. Nationals (urban elite & diaspora) -key players overlooked by press; they account for majority of land acquisitions in Nigeria, Cambodia & Mozambique (but not purchasing huge tracts) 2. Regional Foreign Investors: China purchasing land in S.E. Asia; South Africa purchasing in S. Africa. -ex. Gulf states concern over scarcity therefore purchase more land; others seek strategic access. 3. Global Foreign Investors: private companies, sovereign wealth funds, hedge/pension funds -Top 10: US, MAL, UAE, UK, India, Singapore, Saudi Arabia, China, S. Korea -Top Targets: PNG (Papua New Guinea), IDO, SSU, DRC, MOZ, LIB, SIL, Sudan, EHI, ARG -Canada: no major power, most land deals in Africa; pension fund purchased land in US & CDPQ (QC) $2 billion in US, Australia, N. Zealand

What's different about today? (foreign land acquisitions)

1. Size & Frequency: can involve thousands of hectares & more frequent acquisition now 2. New players: China, Malaysia, UAE & India 3. Disillusionment with Smallholder Farming: lots of effort by IS to promote small-holder farming, but highly difficult to operationalize this leading to disillusionment 4. Vertical integration of agri-business: growing mega-farms which are highly competitive in international agriculture; land is strategic asset for firms b/c provides them w greater influence in host state 5. New crops: bio-fuels and carbon forests (carbon initiative) benefit from economies of scale

cont.

2. Climate change and crop yields -concerns: higher temps, crop-damaging weather, reduced H20, shortened growing season -mixed effects: on one hand, warm temp=decrease productivity of heat-sensitive crop, while on the other hand CO2 enrichment could increase productivity -importance of distribution of impacts: certain areas may benefit, while others suffer

cont.

3. Dietary Change: -we could feed more vegetarians than meat-eaters -Livestock: great amt. of crops used on cattle (=wasteful)--consumes 55% of global coarse grans and 75% of land -if crops shift, calorie increase of 70% possible and can support 4 billion more people -calories per hectare- N.A. and EUR, E. South America and parts of China are highly food inefficient (cattle); delivery rate is low= 10% 4. Food wastage: 30-40% global food is waster ($750 billion loss) -In developing nations, food waste derives from post-harvest loss (@ farm or during transport). In developed, from consumers (can be 50%) -possibility of reuse for animal feed

causes of 'resource curse'

resource characteristics: point-source (appropriable), state-owned, low production cost for high value Three Causes: 1) INCOME VOLATILITY: -caused by- commodity price variation (difficult to manage), rate of extraction (easily accessible sources utilized, the decreased through time), timing of receipt (income highly unstable and volatile) -consequences- cycles of economic boom and bust following value of resource, govt. spending is cyclical and borrow money during booming times, and suffer during bust cycles 2) rent-seeking, patronage, and 'living off the land' 3) Dutch Disease