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Rising uncertainties from COVID-19 cloud medium-term agricultural prospects

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The fight against the global COVID-19 pandemic is causing unprecedented uncertainties in global food supply chains, with potential bottlenecks in labour markets, input industries, agriculture production, food processing, transport and logistics, as well as shifts in demand for food and food services. In the short term, the economic and social impacts of the pandemic interrupt the generally positive medium-term outlook for global agricultural production and food consumption. Governments face the challenge to create balanced policies that address immediate needs, such as labour shortages and create durable conditions for the agricultural sector to ‘build back better,’ according to a new report presented today by OECD Secretary-General Angel Gurría and UN Food and Agriculture Organisation (FAO) Director-General QU Dongyu. 

The joint OECD-FAO Agricultural Outlook 2020-2029 report finds that over the next ten years supply growth is going to outpace demand growth, causing real prices of most commodities to remain at or below their current levels. Fluctuations in the driving factors of supply and demand could lead to strong price variations around this general path. At the same time, a decrease in disposable incomes in low-income countries and households caused by COVID-19 is expected to depress demand in the early years of this outlook and could further undermine food security.

An expanding global population remains the main driver of demand growth, although the consumption patterns and projected trends vary across countries in line with their level of income and development. Average per capita food availability is projected to reach about 3,000 kcal and 85 g of protein per day by 2029. Due to the ongoing transition in global diets towards higher consumption of animal products, fats and other foods, the share of staples in the food basket is projected to decline by 2029 for all income groups. In particular, consumers in middle-income countries are expected to use their additional income to shift their diets away from staples towards higher value products. Meanwhile, environmental and health concerns in high-income countries are expected to support a transition from animal-based protein towards alternative sources of protein.

Open and transparent international markets will be increasingly important for food security, especially in countries where imports account for a large share of their total calorie and protein consumption. “A well-functioning, predictable international trade system can help ensure global food security and allow producers in exporting countries to thrive,” Mr Gurría said. “Experience has shown that trade restrictions are no recipe for food security.

FAO Director-General Qu said: “We need better policies, more innovation, increased investments and greater inclusiveness to build dynamic, productive and resilient agricultural and food sectors.”

 About 85 percent of global crop output growth over the next decade is expected to come from yield improvements resulting from higher input use, investments in production technology and better cultivation practices. Multiple harvests per year will account for another 10 percent of crop output growth, leaving only 5 percent to cropland expansion. By 2024, aquaculture production is projected to overtake capture fisheries as the most important source of fish worldwide. Global livestock production is expected to expand by 14 percent, faster than the projected increase in animal numbers. Feed use will expand in line with aquaculture and livestock production as feed efficiency improvements will be counterbalanced by an increase in feed intensity due to reduced backyard farming.

The Outlook underscores the continuing need to invest in building productive, resilient and sustainable food systems in the face of uncertainties. Beyond COVID-19, current challenges include the locust invasion in East Africa and Asia, the continued spread of African swine fever, more frequent extreme climatic events, and trade tensions among major trading powers. The food system will also need to adapt to evolving diets and consumer preferences and take advantage of digital innovations in agro-food supply chains. Innovation will remain critical in improving the resilience of food systems in the face of multiple challenges.

Assuming the continuation of current policies and technologies, agricultural greenhouse gas emissions are projected to grow by 0.5 percent annually, indicating a reduction in agriculture’s carbon intensity. Livestock will account for 80 percent of this global increase. Nevertheless, without additional efforts, this slowdown will still fall short of what the agricultural sector could and should do to contribute to the Paris Agreement targets for fighting climate change.

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‘Industry 4.0’ tech for post-COVID world, is driving inequality

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Developing countries must embrace ground-breaking technologies that have been a critical tool in tackling the COVID-19 pandemic, or else face even greater inequalities than before, UN economic development  experts at UNCTAD said on Thursday.

“Very few countries create the technologies that drive this revolution – most of them are created in China and the US – but all countries will be affected by it”, said UNCTAD’s Shamika Sirimanne, head of Division on Technology and Logistics. “Almost none of the developing countries we studied is prepared for the consequences.”

The appeal, which is highlighted in a new UNCTAD report, relates to all things digital and connective, so-called “Industry 4.0” or “frontier technologies”, that include artificial intelligence, big data, blockchain, 5G, 3D printing, robotics, drones, nanotechnology and solar energy.

Gene editing, another fast-evolving sector, has demonstrated its worth in the last year, with the accelerated development of new coronavirus vaccines.

Drone aid

In developing countries, digital tools can be used to monitor ground water contamination, deliver medical supplies to remote communities via drones, or track diseases using big data, said UNCTAD’s Sirimanne.

But “most of these examples remain at pilot level, without ever being scaled-up to reach those most in need: the poor. To be successful, technology deployment must fulfil the five As: availability, affordability, awareness, accessibility, and the ability for effective use.”

Income gap widening

With an estimated market value of $350 billion today, the array of emerging digital solutions for life after COVID is likely to be worth over $3 trillion by 2025 – hence the need for developing countries to invest in training and infrastructure to be part of it, Sirimanne maintained.

“Most Industry 4.0 technologies that are being deployed in developed countries save labour in routine tasks affecting mid-level skill jobs. They reward digital skills and capital”, she said, pointing to the significant increase in the market value of the world’s leading digital platforms during the pandemic.

Innovation dividends

“The largest gains have been made by Amazon, Apple and Tencent,” Sirimanne continued. “This is not surprising given that a very small number of very large firms provided most of the digital solutions that we have used to cope with various lockdowns and travel restrictions.”

Expressing optimism about the potential for developing countries to be carried along with the new wave of digitalisation rather than be swamped by it, the UNCTAD economist downplayed concerns that increasing workforce automation risked putting people in poorer countries out of a job.

This is because “not all tasks in a job are automated, and, most importantly, that new products, tasks, professions, and economic activities are created throughout the economy”, Sirimanne said.

‘Job polarization’

“The low wages …for skills in developing countries plus the demographic trends will not create economic incentives to replace labour in manufacturing – not yet.”

According to UNCTAD, over the past two decades, the expansion in high and low-wage jobs – a phenomenon known as “job polarization” – has led to only a single-digit reduction in medium-skilled jobs in developed and developing countries (of four and six per cent respectively).

“So, it is expected that low and lower-middle income developing countries will be less exposed to potential negative effects of AI and robots on job polarization”, Sirimanne explained.

Nonetheless, the UN trade and development body cautioned that there appeared to be little sign of galloping inequality slowing down in the new digital age, pointing to data indicating that the income gap between developed and developing countries is $40,749 in real terms today, up from $17,000 in 1970.

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Greater Innovation Critical to Driving Sustained Economic Recovery in East Asia

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Innovation is critical to productivity growth and economic progress in developing East Asia in a rapidly changing world, according to a new World Bank report launched today.

Countries in developing East Asia have an impressive record of sustained growth and poverty reduction.  But slowing productivity growth, uncertainties in global trade, and technological advances are increasing the need to transition to new and better modes of production to sustain economic performance.

To support policy makers in meeting this challenge, The Innovation Imperative for Developing East Asia examines the state of innovation in the region, analyzes the key constraints firms face in innovating, and lays out an agenda for action to spur innovation-led growth.

A large body of evidence links innovation to higher productivity,” said Victoria Kwakwa, World Bank Vice President for East Asia and Pacific. “The COVID-19 pandemic, climate change, along with the fast-evolving global environment, have raised urgency for governments in the region to promote greater innovation through better policies.

While developing East Asia is home to several high-profile innovators, data presented in the report show that most countries in the region (except China) innovate less than would be expected given their per capita income levels. Most firms operate far from the technological frontier. And the region is falling behind the advanced economies in the breadth and intensity of new technology use.

“Aside from some noteworthy examples, the vast majority of firms in developing East Asia are currently not innovating,” said Xavier Cirera, a lead author of the report. “A broad-based model of innovation is thus needed – that supports a large mass of firms in adopting new technologies, while also enabling more-sophisticated firms to undertake projects at the cutting edge.”

The report identifies several factors that impede innovation in the region, including inadequate information on new technologies, uncertainty about returns to innovation projects, weak firm capabilities, insufficient staff skills, and limited financing options. Moreover, countries’ innovation policies and institutions are often not aligned with firms’ capabilities and needs.

To spur innovation, the report argues that countries need to reorient policy to promote diffusion of existing technologies, not just invention; support innovation in the services sectors, not just manufacturing; and strengthen firms’ innovation capabilities. Taking this broader view of innovation policy will be critical to enabling productivity gains among a broader swath of firms in the region.

“It is important for governments in the region to support innovation in services, given their rising importance in these economies – not only for better service quality but increasingly as key inputs for manufacturing,” said Andrew Mason, also a lead author of the report.

Countries also need to strengthen key complementary factors for innovation, including workers’ skills and instruments to finance innovation projects. Building stronger links between national research institutions and firms will also be critical to fostering innovation-led growth in the region.

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Sea transport is primary route for counterfeiters

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More than half of the total value of counterfeit goods seized around the world are shipped by sea, according to a new OECD-EUIPO report.

Misuse of Containerized Maritime Shipping In the Global Trade of Counterfeits says that seaborne transport accounts for more than 80% of the volume of merchandise traded between countries, and more than 70% of the total value of trade.

Containerships carried 56% of the total value of seized counterfeits in 2016. The People’s Republic of China was the largest provenance economy for container shipments, making up 79% of the total value of maritime containers containing fakes and seized worldwide. India, Malaysia, Mexico, Singapore, Thailand, Turkey and the United Arab Emirates are also among the top provenance economies for counterfeit and pirated goods traded worldwide.

Between 2014 and 2016, 82% of the seized value of counterfeit perfumes and cosmetics by customs authorities worldwide, 81% of the value of fake footwear and 73% of the value of customs seizures of fake foodstuff and toys and games concerned sea shipments. Additional analysis showed that over half of containers transported in 2016 by ships from economies known to be major sources of counterfeits entered the European Union through Germany, the Netherlands and the United Kingdom. There are also some EU countries, such as Bulgaria, Croatia, Greece and Romania, with relatively low volumes of containers trade in general, but with a high level of imports from counterfeiting-intense economies.

To combat illicit trade, a number of risk-assessment and targeting methods have been adapted for containerised shipping, in particular to enforce against illicit trade in narcotics and hazardous and prohibited goods. But the analysis reveals that the illicit trade in counterfeits has not been a high priority for enforcement, as shipments of counterfeits are commonly perceived as “commercial trade infractions” rather than criminal activity. Consequently, existing enforcement efforts may not be adequately tailored to respond to this risk, according to the report.  Tailored and flexible governance solutions are required to strengthen risk-assessment and targeting methods against counterfeits.

As well as infringing trademarks and copyright, counterfeit and pirated goods entail health and safety risks, product malfunctions and loss of income for companies and governments. Earlier OECD-EUIPO work has shown that imports of counterfeit and pirated goods amounted to up to USD 509 billion in 2016, or around 3.3% of global trade.

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