Friday, April 03, 2015

The productivity puzzle

Britain's recent poor productivity performance, which necessarily has an effect on real wages, is the issue that dares not speak its name in the general election. It doesn't reflect well on the Coalition Government, but Labour has not pushed the issue, perhaps because they have no answers.

Britain's record in agricultural productivity has been poor. Between 1900 and 1984, yields of wheat trebled from one tonne to three tonnes an acre. Since then, although there was some improvement in the late 1990s, productivity has more or less flat lined.

Using USDA and OECD data, England ranks seventh out of eight countries on ratio of farm outputs to inputs by value (excluding subsidies). The World Bank calculates that the country produces less cereal per hectare of harvested and than Belgium, France, Germany or the Netherlands.

To put it another way, if we start with a 1990 index of 100, Britain's agricultural productivity was around 118 in 2011. The US was on over 140, the Netherlands and Germany in the 170s, New Zealand near 220 and Denmark over 220.

The high price of agricultural land in Britain doesn't help. It's a popular, lightly taxed investment asset, also popular for sporting and lifestyle purposes. Its steep rise in value absorbs funds that might otherwise be used for investment.

There has also been a sharp fall in applied research and development with a number of public research institutes wound up in the 1980s. Over the past two decades the country's spending on agricultural R & D has fallen by an average of 6 per cent in real terms.

The UK did launch an agri-tech strategy in 2013 with cross-party support, but it is open to question whether the £160m allocated to it is enough or whether it has come too late.

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