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Publicly Funded Agricultural Research and the Changing Structure of U.S. Agriculture 1 Introduction The U.S. food and agricultural sector is undergoing rapid change in the production, distribution, and consumption of food and fiber, and in technology. There have been dramatic increases in production and marketing coordination, market contracting, concentration, and consolidation that have been manifested in significant long- and short-term changes in farm size, number, distribution, and location. Agriculture is becoming increasingly consolidated, as reflected in farm number and size (both in acreage and annual sales). Between 1959 and 1992, the number of farms declined by almost half, but average acreage increased 60 percent and average nominal sales grew tenfold (Sommer et al., 1998). Figure 1–1 shows that between 1935 and 1997, the number of farms has declined from 6.8 million to 1.9 million, with most of the change occurring prior to 1974 and leveling off after 1974 (U.S. Bureau of the Census, 1900–1992; USDA, 1999c). Average farm size also has increased, from 155 acres in 1935 to 487 acres in 1997 (U.S. Bureau of the Census, 1900–1992; USDA, 1999c). Similarly, the increase in average farm size leveled off after 1974.
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Publicly Funded Agricultural Research and the Changing Structure of U.S. Agriculture FIGURE 1–1 Number of farms and acres per farm, 1850–1997. SOURCE: Structural and Financial Characteristics of U.S. Farms: 2001 Family Farm Report, 2001. R.A.Hoppe, ed., Economic Research Service, U.S. Department of Agriculture; USDA, 2001f, based on U.S. Bureau of the Census, 1900–1992 Censuses of Agriculture; U.S. Department of Agriculture, National Agricultural Statistics Service, 1997 Census of Agriculture.
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Publicly Funded Agricultural Research and the Changing Structure of U.S. Agriculture Concentration, as reflected in the increasing share of agricultural output by fewer and fewer farms, also has increased over the past century. Figure 1–2 shows that the smallest percentage of U.S. farms accounting for half of the nation’s agricultural sales declined from 17 percent in 1900 to two percent in 1997 (U.S. Bureau of the Census, 1900–1992; USDA 1999c). Particularly dramatic concentration has occurred in the livestock industry. In 1995, four companies controlled more than 80 percent of U.S. beef cattle slaughter (USDA, 1997c), and it is predicted that 40 or fewer agricultural supply and distribution chains will soon dominate the swine industry (Drabenstott, 1998). Although the increased concentration of production in farming has been dramatic, farming is not as concentrated as other industries. Concentration is most dramatic for the industries with which farmers do business (MacDonald et al, 1999; Stanton, 1993). FIGURE 1–2 Smallest percentage of U.S. farms accounting for half of the Nation’s agricultural sales, selected years from 1900–1997. NOTE: The share of sales in 1909, 1940, and 1969 was calculated by summing share of sales by sales class from Census data, and totaled slightly over 50 percent. The share of sales in 1987, 1992, and 1997 was calculated by the Census Bureau using farm-level data and therefore totaled exactly 50 percent. SOURCE: U.S. Department of Agriculture, Economic Research Service, based on U.S. Bureau of the Census, 1900–1992 Censuses of Agriculture; U.S. Department of Agriculture, National Agricultural Statistics Service, 1997 Census of Agriculture.
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Publicly Funded Agricultural Research and the Changing Structure of U.S. Agriculture Agricultural production is highly concentrated among large family farms (annual sales between $250,000 and $499,999), very large family farms ($500,000 or more), and nonfamily farms (farms organized as nonfamily corporations or cooperatives and farms with hired managers). In 1999, these groups constituted only 8 percent of the total number of farms in the United States, but they accounted for 68 percent of the value of production. In contrast, farms with sales of less than $250000 accounted for 92 percent of all farms but only 32 percent of total agricultural production (USDA, 1999a). Small farms with gross sales less than $250,000 collectively held 72 percent of farm assets, including 74 percent of the land (measured in acres) owned by farms and 87 percent of the land in the Conservation Reserve Program or Wetlands Reserve Programs (USDA, 1999a). There are also marked distributional differences in farm ownership. In 1999, most agricultural operations were fully owned; part owners accounted for more than half the value of production. Farms with annual sales of less than $10,000 were most likely to be sole proprietorships (USDA, 1999a). Contracting and vertical integration are increasing in U.S. agriculture. Contracting—agreements between producers and companies or other farmers that specify conditions of production or marketing—has increased from 1960 to the present (Perry and Banker, 2000). Although only 10 percent of U.S. farms reported marketing and production contracts, the combined contract and non-contract production on those farms accounted for about 52 percent of the total value of farm production in 1999 (USDA, 1999a). Vertical integration—coordination of stages in the agricultural product chain under common ownership—increasingly occurs through market or production chains. In vertically integrated operations, the same firm typically owns several farm-related businesses, such as hatcheries, feed mills, processing plants, and packing facilities. The integrator may also own farms, but more typically contracts with farms to produce commodities. Figure 1–3 shows rapid increases in contracting and vertical integration in the hog industry. One of the most important, but less well recognized, dimensions of structural change in American agriculture has been the regional restructuring of production and of related processing and manufacturing activities. The most dramatic regional shifts in production during the post-World War II period were in the major livestock sectors. In the 1950s through the 1970s fed-cattle production shifted dramatically from the Eastern Corn Belt to the Western Corn Belt and the Southern Great Plains as the expansion of groundwater irrigation enabled rapid growth of feed-grain production in these areas. Broiler production
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Publicly Funded Agricultural Research and the Changing Structure of U.S. Agriculture FIGURE 1–3 Share of hog production by type of vertical coordination, 1970– 1999. SOURCE: Compiled by U.S. Department of Agriculture Economic Research Service from various studies. See S.W.Martinez, 1999. Vertical Coordination in the Pork and Broiler Industries. AER-777, U.S. Department of Agriculture, Economic Research Service. also exhibited rapid shifts and became increasingly concentrated in particular regions (e.g., the Delmarva peninsula, the Mississippi Delta). More recently, there have been major shifts in the location of dairy and pork production. Manchester and Blayney (1997), for example, have
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Publicly Funded Agricultural Research and the Changing Structure of U.S. Agriculture documented rapid shifts in the location of dairy production from 1975 to 1995. The share of national dairy production in the two traditional dairy regions (the Northeast and Lake States), for example, decreased from 48.4 percent in 1975 to 42.8 percent in 1995, while the Mountain and Pacific states witnessed an increase in their share of national dairy production from 16.7 to 29.9 percent over this period of time. Over the past twenty years there was simultaneous growth of pork production in the Southeast, particularly North Carolina, and decreased pork production in the Eastern Corn Belt (McBride, 1997; MacDonald et al., 1999). Changes in the location and size of meatpacking plants are also associated with regional reorganization of production. MacDonald et al. (1999) have noted that in the case of fed-cattle production, packing plants have tended to relocate (mainly to Nebraska, Kansas, eastern Colorado, and the Texas Panhandle) in response to changes in the location of production. By contrast, in the case of hog production, the evidence suggests that the regional relocation of production has been substantially driven by processors as they have moved to the Southeast in search of cheaper labor and less stringent environmental regulations (Khu and Durrenberger, 1998). Operator characteristics also have changed. Since the 1930s, farmers have combined off-farm work with farming, but since the 1970s, more than one third have held down full-time jobs off the farm (U.S. Bureau of the Census, 1930–1992; USDA, 1999c). About 90 percent of farm household income came from off-farm sources in 1999, and net earnings from farming activities averaged only $6,400 per farm household (USDA, 1999a). Sources and levels of income vary with farm size. In 1999, average farm earnings per household increased with sales class. On average, the households of small farms depended heavily on off-farm income, while the households of larger farms depended mostly on farm income (USDA, 1999a). Structural changes in agriculture also are reflected in the changing makeup of what constitutes an underserved farmer group. For example, the number of U.S. farms operated by nonwhite minorities declined from 15 percent of all farms in 1920 to 2.5 percent of all farms in 1997. In 1920, 14 percent of U.S. farms were farms operated by African Americans, but by 1997 only 1 percent was operated by African Americans, and the numbers continue to decline (Hoppe and Effland, 1998; USDA, 1999c). The changes in the modern food and agriculture system pose major challenges for publicly funded research and education. One major challenge is in meeting the diverse and complex needs of agricultural producers—those in commercial agricultural production and those in the sector dominated by the multitude of smaller producers, including niche producers and low-income, limited-resource producers. Publicly funded research and technology are perceived to have favored increases in farm size and to have promoted
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Publicly Funded Agricultural Research and the Changing Structure of U.S. Agriculture industrialization of the farm sector. There is debate over whether publicly funded agricultural research is equally accessible to all users and whether it is targeted to the full range of user and citizens’ groups. This report analyzes the impacts of agricultural research on farm structure, and it offers recommendations related to research and extension programs. It evaluates the applicability of publicly funded agricultural research across the agricultural sector, which ranges from small, poorly capitalized farms to large, well-capitalized industrial organizations. The focus is on analysis without judgment about the social desirability of particular distributions. The committee worked under the assumption that one of the mandates of the public sector is to serve constituents, as demonstrated by the enabling legislation that established the public sector agricultural research system and, more recently, by a public policy that has increasingly supported constituent service. There is a legitimate concern that adoption of some of the committee’s recommendations might result in reduced economic surplus in the aggregate. However, the committee submits that how losses or gains are distributed is also an important question. The issue of distribution among participants in the agricultural industry is a critical and largely missing component of the public policy debate concerning R&D and innovation investments. This chapter provides background on the structural changes occurring in U.S. agriculture; an overview of the committee’s charge and study process, a look at related literature; a brief description of the dimensions of farm structure; background on publicly funded agricultural research; and an organizational summary of this report. THE STUDY PROCESS The U.S. Department of Agriculture (USDA) Research, Education, and Economics Mission Area requested that the Board on Agriculture and Natural Resources of the National Research Council (NRC) convene a panel of experts to examine how publicly funded agricultural research has influenced the structure of U.S. agriculture. The panel was asked to assess the influence of public-sector agricultural research on changes in farm size and numbers, with particular emphasis on the evolution of very-large-scale operations. The committee’s charge was as follows: Review relevant literature—including pertinent rural-development literature—on the role of research and the development of new technology in promoting structural change in farming, evaluating theoretical and empirical evidence.
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Publicly Funded Agricultural Research and the Changing Structure of U.S. Agriculture Consider whether public-sector research has influenced the size of farm operations and, if so, by what means. Provide recommendations for research and extension policies, giving consideration for access to results of public-sector research that leads to new farm production practices and technology. The committee analyzed publicly funded agricultural research documented in the Current Research Information System (CRIS) database, which is USDA’s documentation and reporting system for research projects in agriculture, food and nutrition, and forestry. It also considered information drawn from case studies and from the scientific literature. The committee gathered input and information from stakeholders during two public workshops held in conjunction with this study (Appendixes A and B). This study complements several NRC reviews and evaluations of federal and publicly funded agricultural research programs: National Research Initiative: A Vital Competitive Grants Program in Food, Fiber, and Natural-Resources Research (2000b); Sowing Seeds of Change: Informing Public Policy in the Economic Research Service of USDA (1999); Colleges of Agriculture at the Land Grant Universities: Public Service and Public Policy (1996); Colleges of Agriculture at the Land Grant Universities: A Profile (1995); Investing in the National Research Initiative: An Update of the Competitive Grants Program in the U.S. Department of Agriculture (1994); and Investing in Research: A Proposal to Strengthen the Agricultural, Food, and Environmental System (1989). Those reports were produced, in part, to assess the adaptation of publicly funded research to changing needs and priorities and to enhance the ability of publicly supported agricultural research to serve the national interest. This study also builds on the findings and recommendations of other reports that address structural issues in agriculture: National Agricultural Research, Extension, Education, and Economics Advisory Board Recommendations (2000a, 2000b); A Time to Act: A Report of the U.S. National Commission on Small Farms (USDA, 1998b); A Time to Choose: Summary Report on the Structure of Agriculture (USDA, 1981); Technology, Public Policy, and the Changing Structure of American Agriculture (OTA, 1986); Charting the Course for the Cooperative Extension System Federal Agenda: The Working Group Report (USDA, 1996); The Relationship of Public Agricultural Research and Development to Selected Changes in the Farm Sector: A Report to the National Science Foundation (Busch, et al., 1984); Report of the Strategic Task Force on USDA Research Facilities (USDA, 1999e); and Vertical Coordination of Agriculture in Farming-Dependent Areas (Tweeten and Flora, 2001).
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Publicly Funded Agricultural Research and the Changing Structure of U.S. Agriculture STRUCTURAL CHANGES IN U.S. AGRICULTURE The “structure of agriculture” is a broad phenomenon involving both the characteristics of farms1 (the system of agricultural production) and the relationships of farms to other sectors and institutions. “Structural change” refers to the change in those characteristics over time. While there is no universally accepted definition, many authors have described the structure of agriculture (Boehlje, 1992; Breimeyer, 1991; Lee, 1980; USDA, 1981; Weber, 1978), and there is considerable agreement that farm structure involves matters such as: The size (measured in acreage or gross farm sales) and size distribution of agricultural operations, including the concentration of agricultural production—the increasing share of agricultural output by fewer and fewer firms. The number of agricultural operations. The spatial character of production systems. The technology and production characteristics of agricultural operations, including the level of specialization and diversification. Resource ownership arrangements, including tenancy and leasing. The relationship among ownership, management, and labor. Dependence on primary resources, or the relative degree to which an operation depends on capital, labor, or knowledge. Inter- and intrasectoral linkages, including contractual relationships for marketing and production. The extent and pattern of vertical and horizontal integration. Production, marketing, and financial management strategies. Business organization (including sole proprietorships, partnerships, corporations, and cooperatives) and arrangements (including joint ventures, leasing, independent production, and contracting). Characterization of the workforce, including age, gender, ethnicity, education, experience, skill level, and part-time versus full-time status of the operator. In recent years, the dimensions of farm and agricultural structure that have been of greatest interest in public policy discussions have been farm numbers, the size distribution of farms (and concentration of farm production), and relationships of vertical integration among input providers, farm producers, and agricultural 1 By joint agreement among the USDA, the Office of Management and Budget, and the Bureau of the Census, a farm is any place from which $1,000 or more of agricultural products (crops or livestock) was sold during the year under consideration. This definition has been in place since 1975 (Sommer et al., 1998).
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Publicly Funded Agricultural Research and the Changing Structure of U.S. Agriculture processors. This report will emphasize these structural characteristics but will also consider other dimensions of structure such as the spatial distribution of production, spatial specialization of production, and part-time farming. The following terms are frequently used to describe farm structure: Small farm: Until 1997, the Economic Research Service (ERS) used $50,000 in agricultural sales as the line of demarcation between large and small or “commercial” and “noncommercial” farms. The National Commission on Small Farms, in contrast, established by the Secretary of Agriculture in 1997, used $250,000 in gross sales as its cutoff. Under that definition, 9 out of 10 U.S. farms would be considered small. ERS has since incorporated the $250,000 cutoff in a new farm classification system that divides U.S. farms into mutually exclusive and more homogeneous groups (Hoppe et al., 2000). The ERS farm typology is presented in Appendix D. Family farm: Although many debates about the structure of agriculture involve the future of the family farm, there is no generally accepted definition of the term. The ERS definition includes farms organized as proprietorships, partnerships, and family corporations, but it excludes farms with hired managers and farms organized as nonfamily corporations or cooperatives (Hoppe et al., 1996; Salant et al., 1986). By the ERS definition, a family farm is one in which the operator and the operator’s household legally control the farm. On farms not included under the ERS definition, the farm manager and manager’s family have limited authority over the distribution of the net income or the equity of the farms they operate. The U.S. Census of Agriculture defines family farms more broadly to include partnerships and family-held corporations, as well as sole proprietorships, with no restrictions on hired managers (USDA, 1999c). Vertical coordination: Vertical coordination provides synchronization or coordination of two or more stages in the production and marketing chain under common ownership via management directive (Martinez, 1999). This implies more closely coordinated value chains and fewer alternatives for selling agricultural products. Integrated Ownership: This is the major form of vertical integration, in which a company owns and operates, in addition to input supply or food processing and marketing, crop or livestock production in at least one stage of the food production chain (Tweeten and Flora, 2001). Horizontal consolidation: Horizontal integration, or consolidation, is the process in which businesses that produce the same product at the same stage of
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Publicly Funded Agricultural Research and the Changing Structure of U.S. Agriculture the food marketing chain merge or are joined through acquisitions (Tweeten and Flora, 2001). Consolidation is measured in terms of farm size and number of processors, number of input suppliers, and number of retailers. Regional distribution: The geographic distribution of agricultural production. Industrialized production: This is large-scale production using standardized technology and management linked to processors by formal or informal arrangements. Underserved farmer: The underserved farmer has limited access to the factors of production (land, labor, and capital). Social class, race, ethnicity, and gender are related to underserved farmers’ decreased access. PUBLICLY FUNDED AGRICULTURAL RESEARCH Agricultural research—whether funded in whole or in part by federal, state, and local government sources—was established to serve the public good. Indeed, numerous legislative actions (beginning with the Morrill Act of 1862, the Hatch Act of 1887, and the Smith-Lever Act of 1914) have been taken to establish a system for research and outreach that would serve rural people and agricultural producers as a whole. Publicly funded agricultural research includes a complex variety of funding sources and users. Sources of Public Research Funds The committee considered publicly funded agricultural research any agricultural research performed with financial or material support from the public sector, including international organizations, federal agencies (e.g., USDA, the U.S. Geological Survey, the Department of Interior, the Department of Energy, or the Environmental Protection Agency), state governments and BOX 1–1 Public Sources of Funding for Agricultural Research Legislative commissions Municipal airports, townships National Aeronautics and Space Administration National Cancer Institute National Institutes of Health
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Publicly Funded Agricultural Research and the Changing Structure of U.S. Agriculture National Park Service National Renewable Energy Lab National Science Foundation Park and recreation boards Regional fishing, state departments of agriculture River basin commissions State boards of water and soil resources State departments of administration State departments of health State departments of natural resources State departments of public service State departments of transportation State pollution control agencies U.S. Army, Bureau of Land Management USDA Forest Service U.S. Department of Defense U.S. Department of Energy U.S. Department of the Interior U.S. Environmental Protection Agency U.S. Fish & Wildlife Service U.S. Geological Survey U.S. Peace Corps (Source: Survey of the University of Minnesota College of Agriculture, 2000) agencies (e.g., state departments of natural resources, boards of water and soil resources), and local governments. Box 1–1 shows the variety of public funding sources for agricultural research surveyed by the committee at one college of agriculture. The proportion of public funds in any research activity varies by institution and project. Institutions Performing Publicly Funded Agricultural Research Many institutions conduct publicly funded agricultural research. However, the committee elected not to survey and analyze comprehensively all sources of publicly funded agricultural research, given the challenges in defining and disaggregating investments in agricultural research over time across different agencies and in determining their relationship to structural variables. The committee instead chose to limit the scope of its analysis to a subset of publicly funded agricultural research that could be used as a proxy for the wider scope of research described above. The committee chose to emphasize the principal components of USDA-supported agricultural research and extension, including extramural research by state-level partners and other programs administered by
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Publicly Funded Agricultural Research and the Changing Structure of U.S. Agriculture the Cooperative State Research, Education, and Extension Service (CSREES); intramural biophysical science research conducted by the Agricultural Research Service (ARS); intramural social science research conducted by ERS; the collection and analysis of agricultural data by the National Agricultural Statistics Service (NASS); and research conducted by USDA’s Forest Service. The committee considered a variety of extramural research, extension, and education programs supported by CSREES, states, and other partners. The State Agricultural Experiment Station (SAES)-land grant system, funded in combination by state, federal, and private sources, is the largest component of the U.S. public agricultural research system. Most public funding for SAES is appropriated by state legislatures. Although CSREES-administered formula funds, based on each state’s share of total rural and farm populations, also support the SAES-land grant system, the USDA allocation of total SAES expenditures is small relative to that of the states. In FY 1999, state appropriations to SAES accounted for 51 percent of its total funds; USDA funded only 17 percent. Other federal institutions accounted for about 12 percent, and private sources made up the balance (USDA, 1999f). PRIVATELY FUNDED AGRICULTURAL RESEARCH Recent changes in the relative magnitude of public-sector and privatesector agricultural research provide important context for a discussion of structural change and publicly funded agricultural research. The committee acknowledges that private sources of funding for agricultural research have grown significantly relative to public sources (Huffman and Evenson, 1993; See table in Appendix C). Public-private partnerships are increasingly used as a mechanism for both research and technology transfer, through publicly administered, commodity-levied research and promotion, or “checkoff”, programs, Cooperative Research and Development Agreements, (CRADAs), and other financing and institutional mechanisms (see Fuglie et al., 1996 for a review; discussed in greater detail in Chapter 3). The committee recognizes that mutual influence exists between private and public research, both through the input of public research results into private sector research and through the influence of the private sector on the public-sector research agenda through financing arrangements. The committee considers linkages between the public and the private sectors important and likely to have significant implications for the structure of agriculture. However, an analysis of the relationship between privately funded agricultural research and the structure of agriculture is beyond the scope of this report. It is a significant issue that should be the focal point of further analysis.
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Publicly Funded Agricultural Research and the Changing Structure of U.S. Agriculture REPORT ORGANIZATION The rest of this report summarizes the committee’s analysis of the impact of agricultural research on farm structure. Chapter 2 provides an analysis of the implications of research and technology for the structure of agriculture. The chapter first examines academic analyses of the impacts of research on structural change. Second, the chapter addresses the structural implications of specific types of research innovations, including mechanical, chemical, biologic, and managerial. Third, it describes structural changes associated with the Green Revolution; the introduction of the tomato harvester; and innovations in animal agriculture, including the use of recombinant bovine somatotropin. Finally, the chapter discusses the structural implications of research priorities, including criteria for setting priorities and for obtaining input from stakeholders. Chapter 3 discusses the structural implications of technology adoption and technology transfer, including the influence of extension, the technology transfer arm of the public sector. This chapter also highlights new models for extension, including broader functions and new partnerships that should be further studied with regard to their structural outcomes. Chapter 4 discusses the structural implications of public investments in agricultural research, using historic evidence and current data. The chapter highlights examples of public-sector responses to structural issues, including the development of new funding mechanisms and support for alternative agricultural technologies of interest to producers outside the commercial mainstream. Chapter 5 frames public-sector research and development in the context of other drivers of structural change in agriculture, including market forces, public policy, and the changing role of knowledge and information. Chapter 5 documents changes in the agricultural sector that have resulted from these drivers. Finally, the chapter discusses the structural implications of drivers of change that should be considered in the design of future agricultural research and development policies.
Representative terms from entire chapter: