Resources

Abstract

Agricultural and food production is fundamentally about exploiting natural resources. Resource utilization in agriculture is especially important now and will continue to be in the future due to the scarcity of natural resources. Both agricultural land and water are becoming increasingly scarce resources worldwide. Increasing production on existing agricultural land is necessary, which demands a greater focus on resource utilization and increasing productivity. The richer and more developed a country, the higher the agricultural productivity. During economic growth, labor productivity increases while labor leaves agriculture. Increasing productivity in agriculture represents both an opportunity and a necessity. Increasing productivity is also achieved by new technology, but parallel to this, organic production and consumption is also an increasing trend. Technological advances resulting in increasing productivity and innovation is constantly driving the agricultural treadmill.

9.1 Introduction

Agricultural and food production is fundamentally about exploiting natural resources. Therefore, conserving and renewing natural resources is largely in the interests of agriculture. Natural resources are natural assets (raw materials) that can be used for production or consumption.

Land, water and fertilizer are important natural resources in agriculture. Other resources such as technology, R&D, labor and other human resources are also important—and are perhaps becoming increasingly important.

Resource utilization in agriculture is especially important now and will continue to be in the future due to the scarcity of natural resources, which is why the bioeconomy, which involves using renewable natural resources, is high on the agenda.

Agricultural and food production utilize a large part of the world's total natural resources, cf. Table 9.1.

Table 9.1 Inputs and resources in global agriculture

The table shows that the use of resources in agriculture varies significantly from input to input. When it comes to the use of capital in agriculture, it is relatively small compared to all sectors. However, with regard to natural resources, the share is much larger: Agriculture uses a relatively large share of the world’s land and water, and also a relatively large share of the population is employed in agriculture or lives in rural areas.

9.2 Agricultural Land

Agricultural land is a crucial input in agriculture, the food chain and the entire food supply. Even if agricultural land is farmed even more intensively and vertical farming, artificial foods, etc., make agricultural land less essential, arable agricultural land will still be a crucial input and resource. Agricultural land is a scarce resource.

For many decades, growth in the global population has far outpaced the increase in agricultural land, which means that agricultural land per capita has been declining continuously, cf. Fig. 9.1.

Fig. 9.1

(Note Developed countries: USA, Canada, Japan, Australia, New Zealand, Republic of Korea, EU-27, Norway, Switzerland, Iceland, the UK, the former Yugoslavian republics, Russia and the former Soviet republics. Developing countries: Rest. Predictions according to the source. Source Own calculations based on statistical data from FAO)

Agricultural land per capita in selected regions

As can be seen, agricultural land is becoming an increasingly scarce resource worldwide. This is primarily the case in the developing countries, where population growth is greatest. In 2050, only 0.1 ha of agricultural land is expected to be available per capita.

Furthermore, the developed countries will have 3–4 times as much agricultural land available per capita as the less developed countries. From a resource perspective—with agricultural land as a crucial resource—the developed countries have the best comparative advantages in terms of producing agricultural products. Consequently, the developed countries will continue to play a significant role in the production and export of agricultural and food products to the world's growing population assuming that the less developed countries are able to create competitive businesses and thereby sufficient income to buy and import the food.

The projection of the agricultural land per capita in Fig. 9.1 is based on the assumption that the total amount of agricultural land will not change significantly in the coming decades. However, at the global scale, it is still possible to increase the area of agricultural land. To date, the net expansion has been relatively modest. Indeed, since the beginning of the 1960s, the world's total area of agricultural land has only increased by just under 7 percent. In the same period, global agricultural production has increased by 260 percent, and the population by almost 150 percent. cf. Fig. 9.2.

Fig. 9.2

(Source Own calculations based on statistical data from FAO)

Global agricultural land, agricultural production and population 1961–2021

The figure illustrates that increasing productivity rather than an expansion of the agricultural area is the most important source of increased agricultural production.

Taking into account future demand for land for urban development, forests, infrastructure, climate protection, etc., and the lower value and suitability of new agricultural land, etc., FAO (2009) estimates that the total area of agricultural land will only have expanded by 5 percent by 2050. This figure is based on a projected increase of 120 million hectares in the developing countries and a projected decrease of 50 million hectares in the developed countries. Expanding the agricultural area is thus not the only solution to the problem of feeding a growing global population. Increasing production on existing agricultural land is necessary, which demands a greater focus on resource utilization and increasing productivity.

The rather modest increase in the total area of agricultural land is in part due to the fact that some agricultural land must be completely or partially abandoned every year as a result of erosion, salt accumulation, desertification, etc., which means it can no longer be used for agricultural production. Such degradation reduces soil fertility and thus potential agricultural yields. However, in some cases, the fertility of the soil can be restored, so that several degrees of degradation can be identified.

Agricultural land is becoming an increasingly scarce resource due to the increasing global population, the fact that an increasing amount of agricultural land is being taken out of production to be used for other purposes, and because agricultural land is being seriously degraded in several parts of the world, particularly Asia and Africa.

UNCCD (2022) estimates that between 20 and 40 percent of the global land area has been degraded to a certain extent. If business as usual continues, the UNCCD projects that an additional area almost the size of South America will be degraded by 2050. UNCCD (2022) also has a restoration scenario assuming the restoration of around 5 billion hectares (35 percent of the global land area). It is estimated that up to 12 million hectares of agricultural land are lost annually due to degradation.

Desertification is projected to increase across the world due to climate change. Droughts, climate change, land degradation and desertification are closely interrelated.

According to Braimoh (2015), every year, 12 million hectares of land are lost because of desertification and drought. Desertification could displace up to 135 million people by 2045, and degradation could also reduce global food production by up to 12 percent and push world food prices up by 30 percent.

According to IPBES (2018), by 2050, land degradation and climate change will have reduced crop yields by an average of 10 percent globally, and by up to 50 percent in certain regions. Furthermore, desertification is currently affecting more than 2.7 billion people.

The Sustainable Development Goals (SDGs) include the protection of the resource of agricultural land. Target 15.3 (“Life on Land”) states the following: “by 2030, combat desertification, restore degraded land and soil, including land affected by desertification, drought, and floods, and strive to achieve a land degradation-neutral world” (UNDP, n.d.). This quote illustrates that the UN is taking the problem seriously and has taken concrete steps.

9.3 Water Resources—A Limiting Factor

Like agricultural land, water is a crucial input in agriculture and food production. With a growing population, increasing incomes and the more frequent occurrence of problems connected to climate change—all indisputable megatrends—securing access to sufficient water resources represents a serious challenge.

This challenge has been emphasized in several studies:

• In 2019, the World Economic Forum identified water crises as one of the largest global risks in terms of their potential negative impact in the coming decade. Water crises were defined as “a significant decline in the available quality and quantity of fresh water, resulting in harmful effects on human health and/or economic activity” (World Economic Forum, 2019).

• OECD (2021) emphasizes the fact that agriculture is in part responsible for water crises as, globally, farming accounts for more than 70 percent of all water withdrawals and up to 95 percent in some developing countries.

• OECD (2017) has a clear key message: due to a combination of climate constraints, current water uses, and increasing competition for water, it is predicted that, in many regions, agriculture will face multiple water risks that could negatively affect local, regional and global food production and food security. Water shortages, excessive water and water quality deterioration are projected to increase in some regions and will have an impact on agriculture production.

• 3.2 billion people live in agricultural areas with high to very high water shortages or scarcity of whom 1.2 billion people—roughly one-sixth of the world’s population—live in severely water-constrained agricultural areas (FAO, 2020).

• According to FAO (n.d.), water use grew globally at more than twice the rate of population increase in the last century, and an increasing number of regions are reaching the limit at which water services can be sustainably delivered, especially in arid regions.

• Liu et al. (2022) emphasize that climate change is projected to have negative effects on water availability and will, consequently, seriously constrain food production in many areas of the world. More specifically, their study concludes that agricultural water scarcity will have intensified in more than 80 percent of global croplands by 2050.

• According to OECD (n.d.), climate change is projected to increase the fluctuations in precipitation and surface water supplies, reduce the size of snow packs and glaciers and affect the water requirements of crops.

As discussed, agriculture is the dominant user of water in the world, but several other users of water are important including:

• Industry

• Hydropower

• Municipalities (water provided by public networks mainly to households but also other urban services including stores, markets, tourism centers, and urban industry)

• Fishing (sports fishing in rivers, etc.)

• Nature (preservation or restoration of natural water courses).

The competition for access to water is likely to intensify in the future: Agriculture must significantly improve growing conditions in order to meet the demand for increasing productivity and crop yields. Industry is growing more rapidly than agriculture, and thus their relative share of water consumption will also increase—ceteris paribus. Hydropower is a fossil-free form of energy that can be stored for a short period and is valuable. Municipal water is becoming a more important resource and competitive factor during the countries' economic growth. Finally, sports fishing and interest in protecting the aquatic environment also gain increasing importance during economic growth.

Further visible evidence of the increasing competition for water sources is "water grabbing", which refers to situations in which powerful actors take control of or reallocate water resources for their benefit at the expense of previously (un)registered local users or the ecosystems on which those users' livelihoods are based (Hands off the Land Alliance, 2014). It involves the capturing of the decision-making power around water including the power to decide how the water resources are used now and in the future. Several studies have shown that water grabbing is occurring more frequently, cf. for example Rulli et al. (2013), and Dell’Angelo et al. (2018).

As mentioned above, because yields in agriculture must be almost doubled in the next 50 years to keep up with demand, the growth conditions (sun, nutrition, plant breeding and not least water) must be continually improved. Having access to sufficient water resources is considered to be a critical factor for food supply and food security in the future.

According to World Bank (2022), irrigated agriculture represents 20 percent of the total cultivated land and contributes 40 percent of the total food produced globally. On average, irrigated agriculture is at least twice as productive per unit of land as rainfed agriculture, which highlights the important role it plays in world food production.

The fact that water is becoming an increasingly scarce resource and, therefore, a limiting factor on production is both a megatrend and the result of several megatrends, above all increasing population.

For decades, agriculture and agricultural production globally has accounted for a declining share of total production and added value. However, agriculture is still responsible for more than 70 percent of all water withdrawals, cf. Fig. 9.3.

Fig. 9.3

(Source Own presentation based on UNESCO [2020], UN-Water [2021], and statistical data from FAO and World Bank)

Global water withdrawals for agriculture, industries and municipalities, 1900–2020

In 2020, agriculture accounted for 72 percent of all water withdrawals, municipalities were responsible for 16 percent for households and services, while the share for industries was 12 percent (UN-Water, 2021). The long-term trend shows that global water withdrawals increased more rapidly than the growth in the world population. However, the figure also reveals that the growth in water withdrawals has slowed down in recent decades.

Figure 9.4 presents another example of global water scarcity.

Fig. 9.4

(Source Own presentation based on statistical data from World Bank)

Global renewable internal freshwater resources per capita

Renewable internal freshwater resource flows refer to internal renewable resources (internal river flows and groundwater from rainfall) in the country. As can be seen, there is a clear trend toward decreasing fresh water resources per capita.

Irrigation in agriculture is the largest user of water, but it is also an important contributor to food production and food security. Globally, irrigation has increased annually during the last half century, cf. Fig. 9.5.

Fig. 9.5

(Source Own calculations and presentation based on statistical data from FAO)

Total irrigated land area as a share of total cropland, 1961–2020

Since the beginning of the 1960s, there has been an average annual increase in irrigated land of 1.3 percent. Due to increasing water scarcity, it is clear that the rate of increase in the amount of irrigated land that the world has witnessed in the last 50 years cannot continue into the future. The result of growing water scarcity is both increased competition for water and reduced potential to increase global agricultural and food production.

9.4 Capital-Labor Substitution

The input factors in agriculture change over time in parallel with economic growth. Input factors usually include many different inputs such as labor, capital (including investments in buildings, land, machinery, livestock, etc.), fertilizer, seed, pesticides and management. An important and persistent characteristic is that capital replaces labor: Mechanization is increasing with machines such as tractors and combines largely replacing labor.

While the size of the labor force in agriculture has declined considerably, capital, investment, machinery and technology have increased. A classic substitution between labor and capital has been, and still is, occurring.

There are several reasons for this substitution:

• Technological progress makes it possible to replace manual labor with machines. Milking machines are a good example. Machines are more cost effective, which leads to a “push effect”, whereby labor leaves agriculture.

• Labor costs (wages) increase with economic growth, which means that labor becomes less competitive, ceteris paribus, compared to capital, i.e., machines in this case. When agricultural sales prices decrease and the terms of trade deteriorate at the same time, farmers must seek technological solutions to maintain or strengthen their competitiveness.

• When demand for labor in other industries increases, labor is pulled away from agriculture and into industries (pull effect) because other industries can offer higher wages and better working conditions. This also strengthens mechanization in agriculture.

• Generally, economic growth is characterized by industrialization, commercialization and a business-oriented agriculture, which also implies more capital-intensive farms.

As an example of increasing mechanization, Fig. 9.6 illustrates the change in the number of tractors in selected countries and regions.

Fig. 9.6

(Source Own presentation based on statistical data from FAO and World Bank)

Number of tractors per 100 sq. km of arable land

As can be seen in the figure, there was a clear increase in the number of tractors per unit of area. More recent data was unavailable, but it is likely that the curve will turn at some point: Tractors are increasing in size, which means that the number per unit of area will decrease. The decrease seen in Japan is probably an expression of this.

Substitution between capital and labor for all countries is illustrated in Fig. 9.7.

Fig. 9.7

(Note Number of tractors per 100 sq. km of arable land. 2008 or latest year with available data. Employment in agriculture: Percent of total employment. 2020. Logarithmic axes. Source Own presentation based on statistical data from FAO and World Bank)

Number of tractors and employment in agriculture as a function of GDP per capita

Figure 9.7 presents the use of tractors (capital) and labor in agriculture for all countries in relation to the countries’ economic level in GDP per capita. The figure clearly shows that the use of capital is increasing while the use of labor is declining.

The substitution between labor and capital is illustrated in another way in Fig. 9.8.

Fig. 9.8

(Note Number of people [labor] and tractors per 100 sq. km of arable land. 2008 or latest year with available data. Source Own presentation based on statistical data from FAO and World Bank)

Use of labor and tractors in all countries

The figure illustrates, for each individual country, the use of labor and capital—exemplified by the number of tractors. The countries have a significant use of either capital or labor.

Finally, Fig. 9.9 presents a case of a substitution between labor and several different capital inputs in agriculture during a longer period.

Fig. 9.9

(Labor: Non-family workers. Source Statistical data from Statistics Denmark)

Agricultural workers and number of farms (percent of total) with combine harvesters, tractors and milking machines in Denmark

Figure 9.9 illustrates that while the number of non-family workers has reduced by over 90 percent since the beginning of the 1940s, the number of tractors, combines and milking machines has increased. The proportion of agricultural holdings with these technical aids was very small at the beginning of the 1940s, but the proportion subsequently increased, thereby helping to replace a very large part of the agricultural workforce.

The substitution of labor with capital is quite clear and can be explained by stable driving forces with certain causal relationships. Therefore, the substitution of labor with capital is a global megatrend that is very likely to continue in the future.

9.5 Productivity (Output/Input)

Increasing productivity in agriculture is necessary to maintain or strengthen competitiveness. Increased productivity is often achieved by using new knowledge and technology, which makes it possible to produce more with fewer inputs. The new technology may include a wide range of measures, e.g., large new larger machines, genetics, new cultivation methods, plant breeding, robots, etc.

Increasing productivity will be decisive in the future, and the underlying factors and driving forces are clear: In the coming years, the population will increase far more rapidly than the agricultural area. Therefore, more food will have to be produced, which will have to be achieved through increases in productivity.

Within plant breeding, it is estimated that 90 percent of the increase in production must come from increasing harvest yields and more intensive production (FAO, 2009).

For several decades, crop productivity has been increasing significantly in the Western World as a result of plant breeding, fertilization, improved management, etc. Even though there may be a biological limit to plant production, and environmental problems will present an obstacle, significant increases in productivity can still be achieved globally.

Productivity is usually calculated as output/input measures in quantities. In many cases, however, it is difficult to calculate all the inputs used in the production of a given output. The production of, e.g., 1 kg of wheat requires many different inputs such as fertilizer, seed, labor, capital and land, which is why the concept of partial productivity, in which output is calculated in relation to a single input, is used.

Increasing productivity is not necessarily beneficial. The financial cost of increasing the milk yield or achieving a higher yield per ha in plant production may be greater than the value of the increased production. Optimizing the value and not the volume is decisive. This sounds logical, and yet productivity is often expressed as a quantity because quantities are easier to calculate and compare. When operating with partial productivity (production per ha, per dairy cow, etc.), conclusions about the economic benefits must be drawn with caution. Ideally, all outputs and inputs (all production and all associated resources used) must be included.

As can be seen in Fig. 9.10, the change in agricultural productivity has several interesting characteristics: Productivity increases steadily from year to year, so there is a time dimension. Productivity also increases in line with increasing income, so there is also a dimension of economic development.

Fig. 9.10

(Note 2020 or latest year with available information. Logarithmic scales. Source Own calculations based on statistical data from FAO and World Bank)

Labor productivity (value added per agricultural worker) and agriculture’s share of the countries’ employment (as a percentage of total employment) as a function of GDP per capita (2020)

The figure shows that agricultural productivity correlates to a large extent with the level of the economic welfare in the individual countries (or income)—GDP per capita. The richer and more developed a country, the higher the agricultural productivity. The figure also shows agriculture's share of total employment as a function of GDP per capita. During economic growth, labor productivity increases while labor leaves agriculture.

The increase in labor productivity helps free up labor in agriculture, and this labor can then be used in other sectors, where wages are typically higher.

The same trend in terms of economic growth and productivity can be identified elsewhere, cf. Fig. 9.11.

Fig. 9.11

(Note Trend line is plotted. Sources Statistical data from FAO and World Bank)

Milk yield per cow per year (2020) as a function of the country’s GDP per capita (2020)

The figure presents GDP per capita and the country’s average milk yield per cow for all countries in the world. As can be seen, there is a clear correlation between productivity in the milk sector and a country’s level of economic welfare.

The correlation between milk yield and GDP per capita is remarkable considering the fact that the countries’ climate and natural conditions, which have an effect on milk yields, are so different. Nevertheless, income and the level of development seem to play a clear role.

The figure also reveals large differences in productivity, which are in part due to the varying intensity of production between the countries. The annual milk yield per cow ranges from around 100 kg to just under 13,000 kg.

With a clear correlation between a country’s income and milk yield, the low milk yield in the developing countries is expected to increase as their level of economic welfare increases. Therefore, there is great potential for continuing increases in productivity in the future, mostly in the less developed countries.

The significant differences in productivity between the countries are also illustrated in Fig. 9.12, which presents the average milk yield for selected continents and country groups.

Fig. 9.12

(Source Own presentation based on statistical data from FAO)

Productivity in milk production (2022)

As previously discussed, productivity is related to both the level of economic development and time. In terms of the temporal aspect, a relatively clear correlation can also be observed: Historically, there has been an almost constant increase in productivity in the major agricultural sectors.

An example of an annual increase in agricultural productivity is presented in Fig. 9.13, which presents the long-term change in the average milk yield per dairy cow in the USA and Denmark. The figure illustrates an almost identical increase in the two countries despite significant differences in their structural conditions, agricultural policy and natural conditions.

Fig. 9.13

(Source Own presentation based on [USDA, several issues c], and statistical data from FAO and Statistics Denmark)

Milk yield in Denmark and the USA: Long-term trend

A clear trend toward increasing productivity is also evident within crop production. As a result of plant breeding, fertilization, improved management, etc., crop yields have increased from year to year, starting around the time of the Second World War. As can be seen in Fig. 9.14, since then, wheat and corn yields in the USA have increased three to fivefold.

Fig. 9.14

(Note 3-year moving average. Source Own presentation based on USDA [2022], and statistical data from FAO)

Grain yields in the USA, 1855–2022

Looking at the very long-term development in the USA, despite some decreases in productivity in specific years, there is no indication that a major decrease in productivity will occur in the near future. However, at some point, productivity can be expected to level off once the limit to potential agricultural production has been reached. In the late 1960s, the annual average grain yield increased by around 3–4 percent. Since then, the increase in yields has been slowing, and in 2012–2022, the annual growth rate was between 1 and 2 percent for wheat and maize.

At the global level, crop yields have also been increasing in recent decades in most of the world, although growth in productivity has been slowing. In the 1980s, global grain yields increased by, on average, 2–3 percent per year. However, since then, the rate of increase has slowed, and in the past decade, growth was down to around 1–1.6 percent per year, cf. Fig. 9.15.

Fig. 9.15

(Note For cereal, the annual increase is based on 10-year moving average. For example, 2021 means 2012–2021 compared with 2002–2011. Source Own calculations based on statistical data from FAO)

Change in global cereal yields and population, 1980–2021

The increase in the last decade was mainly due to rising yields in America and Oceania, while Africa, mainly Northern and Middle Africa, experienced the smallest increase. This change demonstrates that the gap in yields between highly efficient countries and those that are not as efficient is increasing.

The figure also presents the annual increase in the global population. As a rule, food production should increase at the same rate as the growth in population in order to avoid increasing food scarcity—all other things being equal. With the size of the agricultural area remaining relatively constant, and because grain is a basic agricultural commodity in most of the world, the cereal yield is used as an indicator of food production. As can be seen in Fig. 9.15, in general, grain productivity has been falling in recent decades, and it has been lower than population growth at times.

If the current trend continues, low growth in productivity will be a critical obstacle to producing enough food for the growing population. Increased productivity and yields are, therefore, essential for being able to feed the world’s population in the future.

Achieving the necessary increases will involve:

• Ensuring sufficient and appropriate research and development, so that the latest knowledge is passed on to farmers.

• Targeting the resources so that increased productivity is achieved in the areas where the results are best compared to the effort.

• Achieving sustainable growth in productivity, i.e., the negative externalities of production are reduced as much as possible.

• Ensuring that increasing productivity creates increasing production to improve the global food situation.

In addition, the effects of climate change will increasingly have a negative impact on opportunities to increase crop yields. More extreme weather events and a higher risk of both droughts and flooding will make it more difficult to increase productivity in crop production.

9.6 The Agricultural Treadmill

The agricultural treadmill refers to the situation in which technological advances result in increasing productivity and innovation for the benefit of progressive farmers, but also result in increased supply, falling prices, economic problems for laggard farmers and thus the need for new progress in technology. The agricultural treadmill and its prerequisites are absolutely crucial for understanding the development—historically and in the future—of the agricultural and food industry.

The question is whether the agricultural treadmill will continue, and whether the underlying driving forces are persistent, or whether some factors will influence and change the development. A preference for less intensive agriculture, more income elastic demand, less price and productivity pressure, etc., may weaken the agricultural treadmill.

In order to understand the importance and consequences of the treadmill in terms of the development of agriculture in future, the model and its prerequisites are presented and briefly discussed below, cf. Hansen (2019):

In 1958, the theory of the agricultural treadmill was presented by the American agricultural economist, Willard W. Cochrane, in the article “Farm Prices, Myth and Reality” (Cochrane, 1958). The concept of the agricultural treadmill is explained in detail in the following:

The treadmill begins when new technology is developed and implemented by those farmers who are the fastest to implement and utilize new knowledge. These farmers (early adopters) are able to gain an economic advantage as a result of the new technology because they can produce at a lower cost with an unchanged selling price. As the number of farmers who adopt the new technology increases, production increases and prices fall. Therefore, the economic advantage that had been gained by the early adopters disappears as it is counteracted by the falling prices.

The laggard farmers—or even the average farmers—who adopted the new technology at a later stage thus only experience the negative effects of technological development, i.e., the falling prices. At this stage of the treadmill, new technology is emerging, which will once again reduce costs or increase productivity and subsequently increase farmers’ earnings. As before, only the progressive farmers (early adopters) will benefit, but only up to the point when the prices start to fall again.

Farmers trapped in the treadmill will always have to run faster by adopting new technology to offset the decline in real prices and terms of trade created by the new technology. The consumers, on the other hand, will benefit from the cheaper food.

The question then is why labor and other resources do not leave agriculture and move to other more profitable sectors. If the market worked perfectly, resources would move to the most attractive industries and away from low-profit industries. If resources moved away from agriculture, the supply would be reduced, and prices would fall less or not at all.

However, the market does not work perfectly, and labor and other resources do not leave agriculture because they are locked (fixed) in the sector; something which has been recognized for a long time (Johnson, 1958). If an asset is fixed, it means that it has a low alternative use and value in other industries. Therefore, the assets remain in the agricultural industry for a long time.

In addition, entry barriers are relatively low—also inside the agricultural industry: If attractive new production opportunities are created, resources will move in order to exploit these new business areas without being hampered by prohibitive entry barriers.

The stages of the treadmill are outlined in Fig. 9.16.

Fig. 9.16

(Note The first three steps are taken by the progressive innovative farmers who achieve a financial gain as a result. As the average farmers also adopt the technology, supply increases further and prices fall accordingly [the last four steps]. Source Own presentation based on Cochrane [1958])

The stages of the agricultural treadmill

The preliminary conclusion is that the drivers and mechanisms in the agricultural treadmill are consistent and persistent.

However, the question is whether other megatrends such as demand will have an influence on the treadmill, perhaps weakening it. The increasing demand for organic food, which is an example of a new consumer trend and a possible game changer, may affect the fundamental market conditions in terms of productivity as well as price and income elasticity. A further question is whether shifts created in the organic food market will affect the underlying mechanisms and megatrends and thus also the agricultural treadmill and whether such changes can be observed empirically. In other words, are conditions such as economies of scale, structural development, productivity pressures and real price declines, which are characteristics of the treadmill in conventional agriculture, significantly different in organic agriculture?

From a theoretical point of view, differentiated products such as organic products can only reduce or delay the conditions under which agriculture operates. This is mainly due to the following three factors:

First, organic farmers also mainly produce raw materials that are difficult to differentiate or develop into unique products. The majority of the added value is created in the processing and marketing industry in the downstream value chain, and the agricultural products are still standard commodities that can be mass-produced. It is difficult to create a “Blue Ocean” for organic agricultural products because the competition is too fierce, the new product could be easily copied and there are limited opportunities to add unique features.

Second, entry barriers are low. Although converting from conventional to organic farming takes time—often several years—and organic farming requires new specific skills and resources, farmers can switch from conventional to organic farming if it is economically attractive. This means that new producers are always attracted to organic production if they think that long-term earnings in organic farming are better than they are in conventional farming.

Third, organic production in agriculture will quickly face price and productivity pressures just like conventional production. Examples from Danish agriculture, where organic agricultural production is significant, illustrate that, in recent years, the change in prices, structure and productivity of organic products has largely developed in the same way as conventional products Hansen (2016, 2019). Figure 9.17 illustrates the change for milk production.

Fig. 9.17

(Source Own presentation based on statistical data from Statistics Denmark)

Organic and conventional milk production in Denmark: Yield and price, 2008–2022

In the period shown, the yield—milk production per cow per year—is approximately 10–12 percent lower in organic production than it is in conventional production. However, the annual increase in productivity is marginally higher in organic production—1.8 percent compared to 1.7 percent in conventional production. The additional price (price premium) of organic milk was approx. 25 percent in the period, while the average annual price increase was almost zero. A significant real price decrease for both conventional and organic milk during the period can be observed. The price increase beginning in 2021 is probably just a temporary price bubble as a result of the global food crisis.

The example indicates that organic agricultural production is subject to the same market mechanisms as conventional agriculture, and that more organic agriculture will not prevent the treadmill from continuing. Therefore, more organic farming is hardly a game changer.

Although the agricultural treadmill is a result of market mechanisms, it is often perceived as a problem as it may seem unfair and burdensome for the farmers who are trapped and are subject to persistent price and productivity pressures, which they cannot control or benefit from.

Furthermore, the treadmill helps to create a form of structural development which is undesirable for some individuals or groups. One possible scenario is that the treadmill or its consequences will be limited through political intervention.

There follows a list of the potential ways in which the treadmill could be changed, although in practice, implementing the measures is not straightforward for several reasons (Hansen, 2019):

• Research activities, which represent the foundation of technological development, could be limited. However, research and development takes place internationally, which means that such a measure would not be possible for an individual country or region.

• Similarly, the dissemination of knowledge from research to the agricultural industry, which is also important for the treadmill, could be limited. By prohibiting the use of technological development (e.g. GMO—genetically modified organisms) or by not supporting knowledge sharing and information, this knowledge dissemination can be subject to restrictions. However, a global market for knowledge exists, and a country or region cannot control that market.

• Increasing productivity and earnings resulting in increased production is an important element of the treadmill. Thus, a significant price decrease as a result of new technology is almost inevitable. This is a natural consequence in a market economy. However, increasing production and supply can be avoided—at the local level—by imposing production restrictions such as quotas. If quotas are to effectively limit supply, import barriers are required, which is not a realistic solution in a time of increasing free trade, globalization and international cooperation.

• Farmers can respond to the improved productivity and earnings by producing higher quality and higher value products rather than producing greater quantities. This strategy is already possible, but there will always be a market for standard goods, low-price products, etc., and some countries and farmers will always be able to produce for this market. High-quality and high-value products cannot per se prevent the increasing pressure on price and productivity in agriculture.

• If farmers produce agricultural commodities for which demand is less price-sensitive (price inelastic demand), the pressure on price can be limited or even completely avoided. The long-term real price decrease, which would otherwise occur as a result of the treadmill, can thus be avoided. In practice, agricultural commodities are relatively homogeneous and are sold on competitive markets with many suppliers and intense price competition. Although processed foods are sold as branded products with high added value and at relatively high prices, it is difficult to differentiate agricultural commodities and make them unique in order to ensure a positive price trend for the farmers in the long term.

• From an agricultural policy perspective, the treadmill may be changed by introducing price support to avoid the real price decrease. Price support was a key element of agricultural policies for many years and in many countries. However, the experience from this shows that price support is not a sustainable solution in the long term, as price support creates other market, trade and economic problems. Price support is also in conflict with the way in which international agricultural policy has developed in recent decades.

• Strong structural development is also a part of—or a consequence of—the treadmill. If the treadmill turns quickly, the rate of structural development will increase. Legislation can be implemented to limit structural development and thus also the effects of the treadmill. However, such restrictions would damage the long-term international competitiveness of agriculture, so introducing a restrictive structural policy in order to solve treadmill problems is not an optimal solution.

• The emigration of labor from agriculture could be encouraged, which would solve some of the economic and social problems that the treadmill creates for the laggard farmers. For example, emigration could be encouraged by making labor more mobile. While such a measure may solve some of the social problems, the treadmill would not stop.

• Finally, laggard farmers could be trained to become early adopters through the provision of advisory services and education. However, this would not stop the treadmill either, although it would reduce the number of farmers trapped in the treadmill. This measure is one of the most aggressive options and while it may have some success in the host country, it would simply move the problem to farmers in other countries or regions.

The conclusion is that market forces will cause the agricultural treadmill to continue in the future, and that any political attempts to significantly weaken it will be futile and unsustainable in the long term.

9.7 Biotechnology

As previously discussed, increasing productivity in agriculture represents both an opportunity and a necessity in order to be able to maintain or strengthen competitiveness. Increasing productivity is achieved by new technology, which makes it possible to increase production with fewer inputs. The new technology may include new and larger machines, genetics, new cultivation methods, plant breeding, robots, etc.

When it comes to plant breeding, which makes a very important contribution to productivity growth, several technologies are available. “Traditional” plant breeding, which consists of crossbreeding, trials and tests, is still the most common method, but new biotechnological methods have been developed which are now widely used.

One of these new technologies is CRISPR (clustered regularly interspaced short palindromic repeats), which allows researchers to precisely alter the genes of various organisms at low cost. CRISPR cannot develop anything that cannot already be created with traditional breeding, but it can develop it faster.

Genetically modified organisms (GMOs) are living organisms whose genetic material has been artificially manipulated in a laboratory through genetic engineering. This creates combinations of genes from plants, animals, bacteria and viruses which do not occur naturally and which cannot be created through traditional crossbreeding methods.

The first genetically modified crops were grown in the USA in 1996, after which the total global area planted with GM crops grew rapidly, cf. Fig. 9.18.

Fig. 9.18

(Source Own calculation based on ISAAA [2017], ISAAA [2019], and statistical data from FAO)

Global area under GM crops and share of total agricultural land

The areas under organic production and those with GMOs both account for an increasing share of the world’s total agricultural area. 1.6 percent of the areas are now organically farmed, while there are GMO crops on approx. 4 percent of the agricultural area. In both cases, there have been significant increases over the past 20–25 years from a low starting point in both cases.

The five countries with the largest GMO areas are the USA, Brazil, Argentina, Canada and India. GMO crops have been approved in approx. 70 countries, and GMO crops are grown commercially in approx. 30 countries. The most important GMO crops are soybeans, corn, cotton and canola.

The area with GMO crops increased by an average of approx. 8 percent per year between 2000 and 2019. Growth has slowed in recent years, which is because inter alia almost all areas in the USA (90–95 per cent) planted with soybeans, corn and cotton have been cultivated with GMO crops for several years, which is why the potential for further growth in this area are limited.

In many ways, the USA is a frontrunner in the development of GMOs and was able to introduce and use GM crops very quickly, cf. Fig. 9.19.

Fig. 9.19

(Source Own calculation based on statistical data from USDA)

Adoption of genetically engineered crops in the USA, 1996–2022

The figure shows that the introduction and adoption phases were relatively short in the USA. After a few years, the market share was over 50. As of around 2015, the GM market share of soybeans, cotton and corn was around 90 or more.

The use of GM has faced both barriers and opportunities in the past and will continue to do so in the future:

On the one hand, the need to increase productivity and yields in plant breeding is enduring and urgent, which encourages the utilization of all technological tools.

On the other hand, market barriers are important. Legislation and consumer resistance are limiting the growth of the global spread of GM.

9.8 Organic Agriculture

The total global area under organic agriculture exhibits a rapidly increasing trend as it more than doubled in the years 2013–2021, cf. Fig. 9.20.

Fig. 9.20

(Source Own calculation based on statistical data from FAO and FiBL)

Organic share of agricultural land: World total

The figure presents the world’s total organic agricultural area in hectares and as a percentage of the total agricultural area. The average annual increase in the organic area was approx. 10 percent—albeit from a relatively low level.

Production is most widespread in the Western countries, and organic agricultural production seems to be a welfare phenomenon in that both production and consumption increase with increasing welfare. As can be seen in Fig. 9.21, there is a very clear correlation between economic welfare and the share of organic agricultural land.

Fig. 9.21

(Note. 2020 or latest year with available data. Trendline included. Source Author’s calculations based on statistical data from FAO and World Bank)

Share of organic agricultural land (percent of total agricultural land) as a function of GDP per capita (2020)

Figure 9.22 illustrates the distribution of organic agriculture on the world’s continents.

Fig. 9.22

(Source Own calculation based on statistical data from FAO and FiBL)

Organic agricultural land: Share of world total (2020)

Australia accounts for almost all of Oceania’s close to 50 percent share of the world’s total organic agricultural area. Since 2000, the organic agricultural area in Australia has grown by 16.5 percent per year, so that now, almost 10 percent of the total agricultural area is organic.

The organic share of agricultural land varies widely between continents, but Oceania has the largest share, while Africa and Asia have the smallest shares, cf. Fig. 9.23.

Fig. 9.23

(Source Own calculation based on statistical data from FAO and FiBL)

Organic share of agricultural land: Regions (2020)

FAO registers organic agricultural land in approx. 175 countries. The positive correlation between the relative importance of organic land and the countries' economic growth indicates that continued economic growth will stimulate both the supply of and demand for organic food.

Both market-based demand and governmental support have stimulated this development, and both these driving forces are expected to continue in the future. In addition, research, development and added value can contribute to higher productivity and increasing production, which may also increase the organic share of total agricultural production.

Finally, other major trends such as sustainability, animal welfare, environmental policy, etc., will also support the organic demand and production.

9.9 Food Loss and Food Waste

Food loss and waste, i.e., a decrease in the quantity or quality of food along the food supply chain, has appeared on the global agenda in the past decade.

Food loss and food waste is a problem because it represents the waste of natural resources, which are not used optimally. In a world with increasing scarcity of resources and increasing demand, reducing food loss and food waste is a potential opportunity to improve resource availability and the pressure on natural resources.

A few key figures illustrate the challenge with regard to food loss and food waste:

• In 2011, the FAO estimated that roughly one-third of all food produced for human consumption globally is lost or wasted every year (Gustavsson et al., 2011).

• The aim of Sustainable Development Goal 12.3 is to halve food waste and reduce food loss by 2030. To provide baselines for SDG 12.3, more precise estimates have been carried out by the FAO and UNEP:

  • Around 14 percent of food produced globally undergoes quantitative food loss between the post harvest and retail stages of the food supply chain (FAO, 2019).

  • Around 17 percent of total global food production ends up as food waste (UNEP, 2021).

The goal of halving food waste and reducing food loss by 2030 is ambitious and requires significant changes.

In a global context, distinguishing between food loss and food waste is important as two concepts are quite different.

• Food loss is the decrease in quantity or quality of food resulting from decisions and actions by food supply chain actors from the primary production stage up to, but excluding, retailers, food service providers and consumers.

• Food waste is the decrease in the quantity or quality of food resulting from decisions and actions by retailers, food service providers and consumers.

In a value chain context, the definitions of food loss and food waste are illustrated in Fig. 9.24.

Fig. 9.24

(Source Own presentation)

Example: Food loss and food waste in a food value chain

Therefore, food loss results from the upstream activities, while food loss results from the downstream activities.

Food loss and food waste have only recently appeared on the agenda. It is difficult to quantify food loss and waste—especially on an aggregate or global level—because the empirical basis is either non-existent or too uncertain. As a result, long-term time series and global trend series do not exist.

However, dynamic interpretations can be made based on relatively reliable data from the most recent years. The prevalence of food loss and waste depends on the income level of countries, and the assumption is that a dynamic development takes place when the countries' income increases. Figure 9.25 illustrates a relatively clear correlation between the percentage of food loss and a country’s level of income.

Fig. 9.25

(Note Geographical division where all countries are included such as Southern Europe, Northern America, Northern Africa, Eastern Asia, etc. Source Own calculations based on statistical data from FAO and World Bank)

Percentage food loss for regions as a function of GDP per capita (2020)

The figure reveals a trend: the percentage of food loss decreases with increasing income.

Figure 9.26 presents the differences in food loss and food waste in North America & Oceania and North Africa & West and central Africa at different stages of development.

Fig. 9.26

(Note Loss: Production + Postharvest + Processing. Waste: Distribution + Consumption. Source Own presentation based on Njie [2022])

Food loss and food waste in high- and low-income regions (2020)

As can be seen, the total loss plus waste is the same for the two regions, but the composition is very different: Loss is low among developed countries and high among less developed countries, while the opposite is the case for food waste. In less developed countries, food loss is a problem in agriculture, logistics and processing, while in developed countries, food waste is a problem in retail and households.

The pattern is shown schematically in Fig. 9.27.

Fig. 9.27

(Source Own presentation)

Food loss and food waste during economic growth (schematic)

The pattern and trends indicate that the total food loss and food waste are relatively constant during economic growth: Food loss decreases, but food waste increases.