Shifts on the demand side create new opportunities for changes in supply. Although on average the agricultural sector is one of low labor productivity and high employment, great heterogeneity exists within the sector. Even in developed countries, there is sufficient heterogeneity in agriculture to raise questions about what constitutes a farm. In the African context, heterogeneity takes the form of a continuum of farm size, capital intensity, use of mechanical and biological technology, and degree of commercialization. An understanding of how to create good opportunities for young people in African agriculture thus requires a detailed look at the agricultural sector, peeling back the averages and looking at the dispersion of participants’ activities, command of assets, and utilization of skills. New opportunities corresponding to changes in local and national markets draw on segments of the farming structure that have been underdeveloped in the past but now have room to grow.

That growth can fuel other sectors as well. While agriculture can help create jobs directly by employing more people and providing raw materials for agri-processing industry, it can also help create non-farm jobs indirectly, by reducing the cost of food. When food represents a high share of consumers’ budgets, as is the case in much of Africa, the cost of food is an important determinant of wage rates in manufacturing and services, and is thereby a contributor to the overall competitiveness and ability of an economy to attract new labor-intensive investments.

Despite differences in the global context and in national economic circumstances, the contribution of agricultural productivity growth to the economy more generally in the United States (U.S.) in the past 45 years holds some useful lessons for Africa for the decades ahead. In the U.S. from 1960 to 2005, the real prices of most agricultural commodities declined by 20-50 percent (Table 1). Despite a recent reversal in direction, most food prices in 2010 (in constant US$) were lower than those in 1960. As a result, primary food products were available at lower prices, which resulted in employment-generating additional transformation of foods for final consumption and greater consumer expenditures on non-food categories.

**Table 1: Change in Prices of Selected Food Products in the U.S.**

|**Period**|**Wheat**|**Maize**|**Sugar**|**Beef**|
|---|---|---|---|---|
|1960-2005|-43%|-52%|-19%|-23%|
|2006-2010|8%|41%|50%|22%|
|1960-2010|-24%|-18%|24%|-10%|

_Source_ : World Bank Pink Sheets.

The decline in real agricultural prices in the U.S. was accompanied by an increase in the cost of inputs and factors of production. The terms of trade (ToT) for agriculture, defined as the ratio of prices received by farmers for their output to prices paid by farmers for factors of production and inputs, declined by 1.2 percent annually between 1975 and 2010 (Figure 2), even accounting for the well-recognized commodity programs that supported farm-gate prices. Farmers in the U.S. and other OECD countries maintained profitability by shifting technologies to use inputs more efficiently and to achieve a different mix of outputs. In the U.S., total factor productivity rose annually by 2.2 percent over this period, low by historic standards, but sufficient to maintain profitability in the face of deteriorating ToT (Figure 2).

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