How big is the agrifood sector? A new, comprehensive measure

Previous attempts at estimating the economic size of the agrifood sector and its contribution to employment have used one of two broad approaches: activity-based or input–output. The activity approach begins by estimating value added in readily identifiable agrifood activities, such as agriculture, food processing, and food services. Studies using input–output approaches estimate employment and activity in all, so called, backward-linkage activities supplying inputs to agrifood businesses.
The new IFPRI study extend these approaches in two different dimensions. First, it not only captures backward linkages from the consumption of agrifood products but also the forward linkages that are created when transforming agriculture-based products into nonfood products, such as cotton or animal skin used for clothing and footwear. Second, it links production data to a global dataset on employment and wages to estimate the jobs and incomes directly and indirectly generated by the agrifood sector and disaggregates these by gender and skill level.

Figure 1 below shows the different outcomes for using either one of these approaches. It shows that:

• Agriculture alone contributes about 4% to the global economy.
• The direct contribution (value added) of the agrifood sector is about 9% of the global economy.
• When also including activity-based backward linkages (Activity GDP+) the contribution is about 13%.
• When considering input-output based backward and forward linkages to both food and non-food activities, the contribution grows to 15.2% or almost one sixth of the global economy.
• The previous finding implies that primary agriculture contributes just over one quarter of the economic value of the agrifood system at large.

Figure 4 highlights how the agrifood system shifts focus from farm-based activities in LICs to manufacturing and services in higher-income countries:

• The share of primary agriculture within the agrifood system itself falls sharply with income, falling to a low of 14.6% on average in HICs.
• The increase in food processing is not as dramatic as the rise in food services in the post-farm segments of the agrifood economy. Processing dominates food services in LICs, but the balance shifts dramatically to food services in HICs. This likely reflects the dominance of basic processing activities in LICs but sharp increases in the importance of restaurants and food establishments as food away from home and prepared foods start to play a much larger role with rising incomes.
• The role of input-supplying industries increases dramatically with income levels and account for the largest share of the agrifood economy in HICs. Interestingly, while the non-food processing and downstream value addition rises with income levels from LICs to lower middle-income countries (LMICs) to upper middle-income countries (UMICs), it falls sharply for HICs. This may reflect the globalization of these largely labour-intensive sectors, that have largely shifted offshore from HICs to more labour-abundant countries (as in the case of apparel, textiles, and footwear).
• A final point to note is that the economic fulcrum of the agrifood system shifts from on-farm, or primary, production-based activities in LICs to activities that are increasingly nonfarm, or manufacturing- and services-based, in lower-middle-income countries (LMICs), upper-middle-income countries (UMICs) and HICs.

The composition of the agrifood system labor force changes dramatically with overall economic development. Figures 5 and 6 show that:

• There is a substantial exit of workers from the agrifood sector as they transition to non-agrifood activities.
• Within this broad trend are also changes in the composition of the agrifood labor force itself.
  • This is seen in the sharp decline in the share of unskilled workers (in the total labor force) employed in agrifood activities as incomes rise, for both male and female workers.
  • Unskilled female workers transition out at a relatively faster pace at lower levels of development (from LIC to LMIC), while unskilled males transition more rapidly between the LMIC and UMIC stages.
  • At the same time, the shares of skilled workers rise consistently with rising incomes.
  • While the overall shares of skilled labor remain relatively small compared to the exit of unskilled labor—indicating a net decline in overall agrifood employment—some interesting patterns emerge in the rising skilled worker trends. As incomes rise, the increase in skilled female workers is slow initially (from LIC to LMIC) but accelerates sharply between the LMIC and UMIC stages, before slowing again. The increase in skilled male workers in the agrifood system is progressively faster, with the largest increase occurring between UMIC and HIC.

A key finding of the analysis is that nonfarm parts of the agrifood sector provide much better-paid jobs, especially for female workers. As shown by Figure 7 and “Table 2” (suggest changing to a graph):

• Across all sources of employment—including on-farm jobs where the few skilled workers are concentrated, skilled workers command a significant wage premium over unskilled workers.
• Non-farm activities, both food- and nonfood-related, pay considerably higher average wages than the agrifood system and notably higher than primary agriculture.
• The gender gap in wage payments is largest in the farm sector, where men earn 45% higher wages than women.
• For skilled farm workers, the premium is lower but still sizeable at 25%.
• When including food processing and food services the wage gap is considerably smaller for both skilled and unskilled workers.
• Gender disparities are also narrower in the backward linkage activities which provide inputs to agrifood and in the forward linkage activities which transform agrifood outputs like cotton and timber into nonfood products.

These findings suggest that facilitating off-farm agrifood employment opportunities helps create better-paid jobs for both skilled and unskilled workers, but especially for female workers in both categories.