Total factor productivity (TFP) is the portion of output growth that cannot be explained by growth in the combined inputs used to produce it — land, labour, capital and materials — and is generally attributed to technology, genetics and management improvements.
The question TFP answers: is a farm, region or country genuinely getting more efficient, or is its output only rising because it is throwing more resources at the problem?
TFP is the whole-input generalisation of Agricultural Productivity. Where a partial measure like yield tracks output against a single input, TFP tracks it against every major input at once, which is what makes it the most reliable gauge of genuine efficiency gain.
What Is Total Factor Productivity?
Formally, TFP is defined as the ratio of total output to a weighted index of total inputs. In the Cobb-Douglas Production Function, Q = A · Lα · Kβ, TFP is literally the term A — the constant left over once the contributions of labour (L) and capital (K), weighted by their output elasticities α and β, have been accounted for. If output rises but A does not, the entire gain is explained by using more labour and capital. If A rises, output has grown by more than input use alone can explain, and that unexplained residual is TFP growth.
In practice, statistical agencies calculate TFP growth as the difference between the growth rate of aggregate output and the growth rate of aggregate input use:
TFP growth = Output growth − Input growth
USDA’s Economic Research Service applies exactly this method in its International Agricultural Productivity data product: it first calculates the growth rate of total agricultural output — an aggregation of 199 commodities, including 160 crops, 31 animal products and 8 aquaculture products, valued at consistent global farm-gate prices — and the growth rate of total input use across land, labour, capital and materials. The gap between the two growth rates is the TFP growth rate. If output is growing faster than inputs, the same input bundle is producing more, or equivalently the same output is being produced with fewer resources, and TFP has risen.
Why Does Total Factor Productivity Matter?
It is the only productivity measure that cannot be gamed by simply adding more of one input. A farmer can raise yield per hectare by pouring on more fertiliser, and can raise output per worker by mechanising, but neither move raises TFP unless it produces more total output than the extra fertiliser or machinery alone would predict. TFP growth is therefore the cleanest signal that available research shows: genuine technological or managerial improvement, not simply more intensive resource use.
It has become the dominant source of agricultural growth worldwide. USDA’s decomposition of the sources of global agricultural output growth from 1961 to 2022 shows productivity improvements contributing essentially nothing to output growth in the 1960s, when growth was driven almost entirely by using more inputs per acre and expanding farmed area. By the 2001–10 decade, TFP growth of about 1.95 percentage points a year accounted for the large majority of total output growth of 2.74 percent — a near-total reversal in the sources of agricultural growth within four decades, and the clearest evidence that world agriculture has shifted from an extensive growth model, using ever more land and inputs, to an intensive one built on efficiency gains.
It is slowing, at a moment when it is needed most. Over the full 1961–2021 period, world agricultural output grew 2.3 percent a year against input growth of only 1.2 percent a year, implying TFP growth of roughly 1.1 percent annually and accounting for close to half of all output growth over six decades. But growth has cooled sharply in the most recent decade: TFP growth fell to about 1 percent a year, down from close to 2 percent a year in the 2000s, contributing directly to the slowdown in overall output growth to under 2 percent a year — the slowest of the six decades covered by the data.
It reveals which countries are converging and which are falling behind. Because TFP isolates efficiency from resource use, it allows meaningful comparison between countries with very different farm sizes and input intensities. Some large developing economies, notably China and Brazil, have posted substantial TFP gains in recent decades, while others have continued to rely mainly on expanding land and labour use — a growth path that runs out once those resources are exhausted, which is precisely the constraint many low-income agricultural economies are now approaching as Land and irrigation water stop expanding.
What Drives Total Factor Productivity Growth?
USDA’s Economic Research Service attributes recent slowing in global agricultural TFP growth to several overlapping causes. Climate change is increasing the frequency of extreme weather events, which tends to reduce average yields and adds volatility that erodes measured productivity gains. Public and private investment in agricultural research and development may not be keeping pace with the scale of new challenges, including the need for climate-resilient varieties. Restricted access to new technologies, trade barriers, and conflict have also had documented negative effects on agricultural production and the diffusion of productivity-raising practices.
Because TFP growth in the Cobb-Douglas framework is captured by the term A, anything that shifts the entire production function upward — improved seed genetics, better soil and water management, more effective extension services, stronger property rights that encourage long-term investment — shows up as TFP growth, even though none of it involves using a single additional unit of labour or capital.
Key Takeaways
- Total factor productivity is the share of output growth that growth in combined land, labour, capital and material inputs cannot explain.
- It is calculated as output growth minus input growth, and corresponds to the constant A in the Cobb-Douglas production function.
- Unlike partial measures such as yield, TFP cannot be inflated simply by using more of one input, making it the most reliable gauge of genuine efficiency gain.
- TFP contributed almost nothing to global agricultural output growth in the 1960s but has been the dominant source of growth since the 1990s.
- World agricultural TFP growth averaged about 1.1 percent a year from 1961 to 2021, but slowed to roughly 1 percent a year in the most recent decade, down from close to 2 percent a year in the 2000s.
- Climate change, underinvestment in agricultural research, and trade and technology barriers are cited by USDA as key drivers of the recent slowdown.
Frequently Asked Questions
What is total factor productivity in simple terms?
Total factor productivity is the part of output growth left over after accounting for all the extra land, labour, capital and materials that were used to produce it. If output grows faster than the combined inputs used to produce it, the surplus growth is total factor productivity, generally attributed to better technology or management.
What is the formula for total factor productivity?
The most common working formula is TFP growth = output growth − input growth. In the Cobb-Douglas production function, Q = A·Lα·Kβ, TFP corresponds directly to the constant A, once the contributions of labour (L) and capital (K) have been accounted for through their output elasticities.
What is the difference between total factor productivity and labour productivity?
Labour productivity is a partial measure — output divided by labour input alone — and rises even if the gain comes entirely from using more machinery or land per worker. Total factor productivity accounts for all major inputs simultaneously, so it only rises when output increases by more than the combined growth of every input can explain.
Why has global agricultural total factor productivity growth slowed?
USDA’s Economic Research Service points to climate change increasing extreme weather and reducing average yields, agricultural research and development investment not keeping pace with need, and trade barriers, conflict and restricted access to new technologies as the main contributors to the recent slowdown in global agricultural TFP growth.
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References and Further Reading
- Fuglie, K., Morgan, S. & Jelliffe, J. (2024). World Agricultural Production, Resource Use, and Productivity, 1961–2020 (Report No. EIB-268). USDA Economic Research Service. https://ers.usda.gov/sites/default/files/_laserfiche/publications/108650/EIB-268.pdf
- Fuglie, K., Morgan, S. & Jelliffe, J. (2023). World agricultural output and productivity growth have slowed. USDA Economic Research Service, Amber Waves. https://www.ers.usda.gov/amber-waves/2023/december/world-agricultural-output-and-productivity-growth-have-slowed
- Morgan, S., Fuglie, K. & Jelliffe, J. (2022). World agricultural output growth continues to slow, reaching lowest rate in six decades. Amber Waves, USDA Economic Research Service. https://ageconsearch.umn.edu/record/338883
- Cobb, C. W. & Douglas, P. H. (1928). A theory of production. The American Economic Review, 18(1), 139–165. https://www.jstor.org/stable/1811556
- USDA Economic Research Service. Sources of growth in global agricultural output, 1961–2022. https://ers.usda.gov/sites/default/files/_laserfiche/Charts/58525/globalproductivity2022_d.html
- USDA Economic Research Service. International agricultural productivity growth remains uneven across countries. Charts of Note. https://ers.usda.gov/data-products/charts-of-note/chart-detail?chartId=78391