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Macroeconomic statistics

The Agriculture and Food-Processing Sectors along the Economic Development Process: Evidence from the FAO Macro-Indicators Database (1970-2014)

October 2016

Trends in GDP and agriculture value added at global and regional levels. 

In 2014, global real Gross Domestic Product (GDP) reached $58 trillion in constant 2005 US dollars, 3.7 times its 1970 level of $15.6 trillion (Graph 1). Real GDP grew at a global annual rate of 3.0% between 1970 and 2014, led by Asia & Pacific (6.0%), Africa (3.5%), and Latin America (3.4%). It grew more slowly in the other regions: Northern America (2.8%), Europe (2.2%), and the Other Developed countries (2.6%), consisting of Australia, Japan and New Zealand. Although the three developed regions contributed to over half of global GDP during the 45 years, their global share shrank from 85.7% in 1970 to 68.3% in 2014, while Asia & Pacific’s share more than tripled from 6.4% to 22.3%.

Graph 1. Regional Contributions to Global GDP and Agriculture Value added, constant 2005 USD (billions), 1970-2014

Between 1970 and 2014, real global value-added in the Agriculture, Forestry and Fisheries (“agriculture” subsequently) sector rose from $0.7 trillion to $1.9 trillion in constant 2005 USD. In 1970, the main contributors to global agriculture value added were Asia & Pacific (34.9%) and Europe (27.2%), with the Other Developed region closing the leading trio with a contribution of 12.3%. By 2014, Asia & Pacific contributed 49.3% of the sector’s global value added, while the shares for Europe and the Other Developed region had fallen to 15.9% and 4.6%, respectively. 

The global contributions of the three other regions remained stable or increased slightly from 1970 to 2014: Africa’s contribution rose from 9.0% to 12.2%, Latin America and the Caribbean’s rose from 8.3% to 8.9%, and North America’s remained at around 9% with year-to-year fluctuations, including a decline to 7% in the late 1970s to mid-1980s.

The total contribution of agriculture to real global GDP fell from 4.3% to 3.3% over the 1970-2014 time span. The decreasing relative share of agriculture was the sharpest in Asia & Pacific. Indeed, despite the increasing contribution of Asia and the Pacific to global agriculture value-added, this sector’s share of regional GDP share shrank from 23.6% in 1970 to 7.3% in 2014. The region’s higher global share compared to other regions may reflect productivity gains driven by rapidly increasing physical investment flows directed towards the agriculture sector in the Asia & Pacific. The sector’s declining share of the Asia & Pacific GDP may reflect that other sectors benefited from even higher investments ratios.  

Graph2. Agricultural Value Added as a share of GDP by region (constant 2005 USD), 1970-2014

Agriculture and food-processing value added - Cross section analysis, trends and interlinkages

As economies grow and develop, the productive landscape undergoes structural transformations, sectors become more interrelated, and determining the importance of any specific sector becomes difficult. This is certainly the case for agriculture where agricultural production understates the sector’s overall contribution to the economy through its links to numerous industries such as fertilizer production, food processing and manufacturing, transportation, wholesale, and retail distribution. This raises the questions about the relative roles of these sectors as an economy develops, the impact of agriculture on the entire value-chain and the drivers behind time trends and country-level differences.  

In a first attempt to tackle these issues, the analysis is extended to the food-processing sector in what follows. The focus is on the respective contributions of agriculture and food-processing to GDP and on their interlinkages over time and across countries. Contrary to the agricultural sector, data on the food-processing sector are incomplete in the time and geographical coverages (unbalanced panel data set). For this reason, we cannot proceed to global and regional analysis and we turn to cross-country analysis.

Taking select countries, Graph 3 displays the trends in agriculture and food-processing valued added (with units reported on left-hand side axis) from 1990 to 2014, unless otherwise specified. The stacked areas provide an idea of how the two sectors compare in terms of their size. For ease of reading, the food processing-to-agriculture value added ratio is also displayed (with units reported on right-hand side axis).

The size of the food-processing sector relative to that of agriculture varies substantially from country to country: while the food-processing sector value added well surpasses that of the agricultural sector in the United States, it remains small compared to total agriculture in other countries. Cross-country differences also appear in the trends of the food-to-agriculture value added ratio. Over the 1990-2014 time span, the ratio remains quite stable in the United States of America and Spain but showed upward patterns in Brazil, India and Turkey, suggesting an increasing size of the food-processing sector compared to agriculture. Kenya is among the few countries included in FAO Macro-Indicators dataset which actually saw a decrease in the food processing-to-agriculture ratio. 

Graph 3. Contribution of Agriculture and Food-processing to GDP. Select Countries, 1990-2014 (unless otherwise indicated)

Table 2 provides a first evidence of the interlinkage of the food processing-to-agriculture value added with the level of economic development. Over the 2010-2012 time span, the size of the food-processing sector is about half that of the agricultural sector in terms of value added in the developing countries. This contrasts with the developed countries that have an average ratio of 1.2 over the 2010-2012, indicating that the food processing sector surpasses agriculture. At a regional level, Africa has the smallest food processing-to-agriculture ratio (0.2) followed by Asia & Pacific (0.5) and Latina America & Caribbean (0.8). The highest ratio is observed in the Other Developed region (1.8), while that for Northern America and Europe were around 1.2.

Table 1. Average food processing-to-agriculture value added ratio by country grouping (2010-2012)

All countries

0.880

Developed countries

1.230

Developing countries

0.455

Africa

0.219

Asia & Pacific

0.465

Europe

1.196

Latin America & Caribbean

0.798

Northern America

1.246

Other Developed

1.756

All countries

0.880

Developed countries

1.230

Developing countries

0.455


A graphical display of the pairwise correlation matrix between the ratios agriculture value added over GDP (aff_to_GDP), food processing value added over GDP (fbt_to_GDP), food processing over agriculture value added (fbt_to_aff), and the log of GDP per capita (lgdp_procap) is provided underneath. The correlation between the agriculture value added-to-GDP ratio and GDP per capita is negative (with coefficient equal to -0.81), confirming a well-known fact in the economic development literature that as economies get richer, the relative size of the primary sector in total economy shrinks. The same sign is found for the correlation between the food processing value added-to-GDP ratio and GDP per capita though the coefficient value is somewhat lower (-0.45). However, a positive correlation is found between GDP per capita and the food processing-to-agriculture value added ratio (0.54), suggesting a shift in sectoral composition. Even though the relative contribution of both agriculture and food-processing diminishes as economies get richer, the food-processing sector grows in size compared to the agricultural sector.

The above-mentioned positive relationship is found in all regions, as evidenced in Graph 5 in which the trend lines all points upward.

Graph 4. Pairwise correlation analysis

Graph 5. Real GDP per capita vs. food processing-to-agriculture value added ratio by region

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