and consumption, in technology, in size of operation, and in geographic location. Productivity technology and public-sector R&D investments have been and will continue to be major determinants of comparative advantage and competitive position, including such considerations as public-sector support for research and technology transfer, the commercialization of new scientific discoveries, global trends and investments in new technology, and the status of intellectual property rights. However, R&D investments, technology, and innovation are only one component of many forces that drive change in agriculture. Other drivers contribute as well: pressures from consumers and end-use markets, changing demographics and work habits of U.S. families, changing attitudes about food safety and quality, increasing competition from global market participants, economies of size and scope in production and distribution, the inelastic characteristic of the demand for food1, risk mitigation and management strategies of buyers and suppliers, strategic positioning, market power, and control strategies of individual businesses, and private sector R&D and technology transfer policies. Finally, the availability and cost of resources, including capital and finance, personnel and human resources, and information and industry infrastructure in general will significantly affect the future structure of the farming sector.

Relative Price of Labor and Capital

A critical interaction between resources and technology has occurred in the United States and in other places around the world. In the past, production agriculture in America was driven by technology to save physical labor. The cotton gin, steel plow, reaper, tractor, and combine harvester all conserved physical labor and increased efficiency. More recently, electronic and information technologies have been used to alleviate the scarcity of managerial labor and expand the size of business one manager can supervise.

The implications of technology and innovation for changes in the agricultural industry cannot be well understood without an appreciation for the concept of induced innovation (Hayami and Ruttan, 1985). According to the induced-innovation concept, a fundamental driver of R&D investments is the relative price of a resource—specifically capital or labor. R&D investments are

1  

The traditional literature on agricultural policy (Cochrane, 1993; Gardner, 1992; Schultz, 1964) argues that consolidation in agriculture results from a high rate of technologic change and low price and income elasticities of demand (where reduction in price or increase in income do not significantly alter quantity consumed). Technologic changes tend to increase supply and with low elasticities, the increase in supply results in significant reduction in farm prices. Thus technologic change and price elasticity have contributed to the falling relative prices of agricultural products and some of the resulting policy and structural issues.



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