How does agri-business compare to others, regarding productivity and innovation capacity?
The following section describes the metrics on Productivity and Innovation that were embedded in Deliverable 6.3.
– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –
Performance metric 3: Productivity and Innovation
Total factor productivity in sector
A comprehensive measure for viability is Total Factor Productivity (Latruffe 2010): the ratio between an aggregation of all outputs and all primary inputs. However, this indicator might be biased by different qualities in inputs: e.g. ICT using sectors or capital-intensive sectors have higher levels of Total Factor Productivity (O’Mahoney and van#Ark 2003). Differences in levels between countries as well as changes might be incurred by the use of different technologies or by switching to more advanced technologies. Estimating the factors that determine the TFP is rather demanding. As the aim of this study is not to explain the levels or changes of TFP we will use the value added as productivity proxy. However, such a proxy is sector size dependent e.g. large countries will have a larger level of value added than small countries. For that reason, we will use the ratio of total Gross Production to expenditure on all primary factors (land, labour, capital). The growth in TFP is the derived variable.
Labour Productivity in sector
Labour Productivity is often seen as a crucial determinant of viability. Buckley et al (1988) classify productivity as an indicator for competitiveness potential. O’Mahoney and Van Ark use the growth in labour productivity as performance indicator (O’Mahoney and van#Ark 2003). Krugman and Obstfield’s statement underpins this choice: ‘…absolute productivity advantage over other countries in producing a good is neither a necessary nor a sufficient condition for having a comparative advantage in that good.’ (Krugman and Obstfeld 2006).
Labour Productivity is the real value added divided by the number of employees. However, in GTAP employment is measured in monetary values and not in persons. In contrast to the usually interpretation labour productivity – Value Added per unit labour input- now the labour productivity is the Value Added per USD labour input. Growth in labour productivity is the associated derived variable.
Total factor productivity in sector relative to economy
The concerned individual variable for relative TFP is the ratio of agri-food sector TFP to TFP for the economy. A ratio of less than one indicates that sector is not keeping up with the economy when it comes to productivity growth. For ratios greater than one, the sector outperforms the economy in terms of productivity growth. A growth in this ratio is the derived variable for this measure.
Labour Productivity in sector relative to economy
A similar comparison as for relative TFP, can be made for labour productivity – ratio of labour productivity in the agri-food sector to that for the whole economy. With the growth in this ratio overtime measuring being the derived variable.