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Technical Change and Innovation in Agriculture VERNON W. RU11AN Over the past 50 years, U.S. agriculture has been transformed from a resource-based industry to a science-based industry. It has been transformed from a traditional to a high technology sector. Agriculture is one of the relatively few sectors in the U.S. economy that have been able to maintain their technological leadership—to achieve or maintain world class. A number of lessons can be drawn from the agricultural research system that may be relevant for re- search policy irz other sectors of the economy. During the past half century U.S. agriculture has retained and enhanced its stands as a world-class industry. This has occurred at a time when a number of other U.S. basic industries, most notably automobiles and steel, were experiencing substantial erosion in their capacity to compete in world markets. The focus of this chapter is primarily on innovation on the part of the suppliers of technology rather than on innovation in the farm production sector itself. The new technologies employed in agricultural production are, by and large, not a product of research and development by the firms that engage in the production of agricultural commodities. Even the largest farm Finns are too small to capture more than a small share of the gains that might be realized by research and development efforts. New technologies in ag- riculture are, with the exception of some mechanical technologies, largely He product of research and development by public sector research institutions and private sector suppliers of technical inputs to agriculture. These new technologies reach the farmer embodied in inputs that are purchased from the fann-supply industries and in He form of disembodied knowledge pro- vided by the private suppliers of technology, private consultants, and public sector educational institutions. No attempt is made in this chapter to discuss 333

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334 VERNON W. RU7TAN the diffusion of technology the sequence of innovation within the farm production sector. There is a large literature that su~,~,ests that profitable new technologies are adopted very rapidly by farmers in both developed and underdeveloped countries.: This chapter (a) discusses the evidence on productivity growth and on the returns to agricultural research, (b) reviews the changing role of the public and private sector in agricultural research, (c) discusses the dominant role of factor prices in directing productivity growth, and (d) suggests some of the implications of the agricultural experience. THE CONTRIBUTION OF RESEARCH TO PRODUCTIVITY GROWTH The beginning of modernization in agriculture is signaled by sustained growth in productivity.2 During the initial stages of development, productivity growth is usually accounted for by improvement in a single, partial produc- tivity ratio, such as output per unit of labor or output per unit of land. As modernization progresses Were is a tendency for growth in total productiv- ity output per unit of total input to be sustained by a more balanced combination of improvement in partial productivity ratios. This was clearly the case in the United States. Prior to the mid-1920s productivity growth in U.S. agriculture was driven almost entirely by growth in labor productivity- output per worker (Table 11. Since We mid-1920s growth in labor productivity has been complemented by growth in land productivity. The contrast with the Japanese experience is quite striking. Prior to the mid- 1950s productivity growth in Japanese agriculture was driven almost entirely by growth in land productivity (Table 21. Since the mid-19SOs growth in land productivity has been complemented by growth in labor productivity. TABLE 1 Average Annual Rates of Change (percentage per year) in Out, Inputs, and Produchvitr in U.S. Agriculture, 187~1982 Item 187~1900 19001925 1925-1950 195~1965 1965-1982 FarTn output 2.9 0.9 1.6 1.7 2.1 Total inputs 1.9 1.1 0.2 - 0.4 0.2 Total productivity 1.0 - 0.2 1.3 2.2 1.8 Labor inputsa 1.6 0.5 -1.7 - 4.8 —3.4 Labor productivity 1.3 0.4 3.3 6.6 5.8 Land inputs 3.1 0.8 0.1 -0.9 0.0 Land productivity —0.2 0.0 1.4 2.6 1.8 . aNumber of workers, 18?~1910; worker-hour basis, 191~1982. bCropland used for crops, including crop failures and cultivated summer fallow. sounds: Data from U.S. Deponent of Agnculture, Changes in Farm Production and Efficiency (Washington, D.C.: 1984); and D. D. Durost and G. T. Barton, Changing Sources of Farm Output, Production Research Report No. 36 (Washington, D.C.: U.S. Department of Agnculture, Feb. 1960). Data are 3-year averages centered on Me dates shown.

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TECHNICAL CHANGE AND INNOVATION IN AGRICULTURE 335 TABLE 2 Average Annual Change in Total OUt:pUt, Inputs, and Productivity in Japanese Agriculture, 1880-1980 - Item 188~1920 1920-1935 1935-1955 1955-1965 1965-1980 Farrn output 1.8 0.9 0.6 3.5 1.2 Total inputs 0.5 0.5 1.2 1.3 0.7 Total productivity 1.3 0.4 - 0.6 2.2 0.5 Labor inputs - 0.3 - 0.2 0.6 - 2.5 - 3 .7 Labor productivity 2.1 1.1 0.0 6.0 4.9 Land inputs 0.6 0.1 - 0.1 0.1 - 0.6 Land productivity 1.2 0.8 0.7 3.4 1.8 SOURCES: Data from Saburo Yamada and Yujiro Hayami, A=ncultural growth in Japan. 1880- 1970, pp. 33-58 in Agricultural Growth in Japan, Taiwan. Korea and the Philippines. Yujiro Hayami, Vernon W. Ruttan, and He~..an Southworth. eds. (Honolulu: University Press of Hawaii' 1979); Saburo YaTnada, The secular trends in input-output relations of agricultural production in Japan, 1878-1978, paper presented at the Conference of Agncultural Development in China. Japan, and Korea. Academica Sinica' Taipei, December 17-20, 1980; and Saburo Yamada, Counny Study on Agncultura1 Productivity Measurement and Analysis Japan. Mimeograph (University of Tokyo Instin~te of Oriental Culture. October 1984). Data are 3-year averages centered on the dates shown. The transition from one growth path to another has not been easy for either the United States or Japan. The United States experienced a dramatic slowing of productivity growth following, Me closing of the land frontier in the 1 89Os. Japan experienced a slowing of total productivity growth as it made the transition from a land-saving to a more balanced path of technical change between 1935 and 1955. And Japan has again experienced a reduction in the rate of productivity growth beginning in the late 1960s. Adjustments in fawn size in response to rising wage rates have been inhibited by institutional constraints. In We United States the transition from resource-based to science-based agriculture was made possible by the institutionalization of public sector research capacity designed to speed the advance of land-saving biological, chemical, and managerial capacity. Public sector agricultural research insti- mtions were established during the nineteenth centur, . But financial support was niggardly and research capacity remained rudimentar, until Me closing of the frontier induced a demand for land-saving or yield-increasing technical change Productivity growth in U.S. agriculture slowed moderately from the 1950-1965 rate dunng 1965-1982. I anticipate a further slowing until at least the mid-199Os, when less-energy-intensive biological technologies will begin to exert a measurable impact on agricultural productivity growth. Estimates of rates of return suggest that public agncultural research has clearly been among the most productive investments available to the Amer- ican economy (Table 3~. There remain a number of serious gaps in our knowledge about sources of productivity growth, however. Public sector agricultural research appears to have accounted for about one-fourth of the

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336 VERNON W. RU.ITAN TABLE 3 Estimated Impacts of Research and Extension Investments in U.S. Agnculture Annual Rate Percentage of Productivity of Return Change Realized in the State Period and Subject (5tc) Undertaking the Research 1868- I 926 All agncu}tural research 65 not estimated 192?-1950 Technology-onented agricultural research 95 55 Science-onented a;,nculn~ral research 110 33 1948-1971 Technology-onented agncultura1 research South 130 67 North 93 43 West 95 67 Science-onented agncultural research 45 32 Pann management and agncultural extension 110 100 SOURCE: Adapted from Robert E. Evenson. Paul E. Waggoner, and Vernon W. Ruttan, Economic benefits from research: An example from agnculture. Science 205 (Sept. 14, 1979): 1101-1107. growth in total productivity in the agricultural sector. Increases in the edu- cational level of farm people have accounted for somewhat more than one- fourth of productivity growth. But why has investment in agncultural research not had more growth leverage? The answer must be found in very substantial undennvestment. The total investment in agricultural research is so small relative to agricultural production that even investments that generate very high rates of return exert only a modest impact on the rate of grown of agricultural output and pro- ductivity Among the factors that have not been adequately studied in recent research is the impact on productivity growth of private sector research, technology development, and technology-transfer activities. PUBLIC AND PRIVATE SECTOR GENERATION OF AGRICULTURAL TECHNOLOGY Innovative behavior in the public sector has been largely ignored in the literature on innovation. Indeed, it would not be too inaccurate to argue that we have no agreed theory of public sector innovation. This is a particularly critical limitation in attempting to understand the process of scientific and technical innovation in agricultural development.3 In all of the countries Hat

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TECHNICAL CHANGE AND INNOVATION IN AGRICULTURE 337 have been successful in achieving rapid rates of technical progress in agri- culture, the "socialization" of agricultural research has been deliberately employed as an instrument of modernization in agriculture. The appropriate role of the public and private sectors in agricultural research will depend, however, on the state of a nation's technical and institutional development. In this sections I discuss recent trends in agricultural research and devel- opment In the public and private sectors in the United States and present two case studies that illustrate the complex and changing relationships that have emerged between public and private sector research and development. Three criteria have been used to gauge the appropriate role of the public and private sectors in agricultural research. The primary rationale for public sector investment has been that in many areas incentives for private sector research have been inadequate to induce an optimum level of research in- vestment that is, the social rate of return exceeds the private rate of return because a large share of the gains from research accrue to other firms, to producers, and to consumers rather than to the innovating fimn. A second criterion for public sector investment in agricultural research is its complementarily with education. There is a strong synergistic interaction between research and education in the agricultural sciences and technology. This relationship is so strong that in many fields research productivity carries a strong penalty when research is conducted apart from graduate education. And graduate education can hardly be effective when bode students and teachers are not engaged in research. A Bird argument for public sector research is that it contributes to the maintenance or enhancement of a competitive structure in the agricultural input, production, and marketing sectors. There is, for example, considerable evidence that the flow of new technology from public sector research and development has contributed to competitive behavior in the seed and fertilizer . . nc ustnes. There is, however, no reason to believe that the optimum level of public sector investment in research implied by the several criteria would be iden- tical. Where incentives for private research investment are particularly strong, for example, the level of public sector research implied by We training criterion could exceed the level implied by the criterion of social rate of return. Recent Trends in Public and Private Sector Research The extent of research and development expenditures by the private sector in support of the U.S. food system is poorly documented. The best single set of data available are the 1965 estimates developed by the Agricultural Research Instituted The 1978 and 1979 estimates assembled by Malstead ( 1980) suggest Tat private research expenditures by firms in the agricultural-

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338 TABf E 4 Estimates of Industry R&D Expenditures for Fanning and Pos~arming Efficiency ($ millions) VERNON W. REPLAN 8 1979 814-909 402~97 60-155 339 3 Farm input industries Plants Plant breeding Pesticides Plant nutrients Animals Animal breeding Animal health (mostly veterinary drugs) Animal feed and feed ingredients Farm equipment and machinery Processing and Distribution F. produce transport equipment Food processing machinery Food processing Tobacco manufacturing Nan=1 fiber processing Packaging materials 75 1-846 348-443 55-150 290 3 178 49 99 30 225 641-65 1 40 85 350 4~50 187 ~5 99 33 225 734 744 45 100 400 40-50 10 20 1 16 129 SOURCE: From Illona Malstead, Agnculture: The relationship of R&D to federal goals. Photocopy (Washington, D.C.: 1980). Sources consulted In constructing the estimates included the Agncultural Research Institute, the National Agricultural Chemical Association, the Animal Health Institute, the American Feed Manufacturers' Association, the Farm and Industrial Equipment Institute, Me South- eastern Poultry Association, and the National Association for Animal Breeders, and individual company representatives input industries and in the processing and distubunon industries were about $1.6 billion in 1979 (Table 4~. The R&D data presented in Table 4 include expenditures in the area of processing and distribution that do not contribute directly to agricultural production or even very significantly to consumer satisfaction. Yet there are also important research expenditures that are not reflected in We data in Table 4. Doling 1969-1977 less than 10 percent of the patents for processes and products for Me food industry originated in the U.S. food industry (Mueller, et al., 19801. A relatively high percentage of inventions leading to patents in the farm-machinery industry emerge outside formal R&D laboratories and shops. A complete accounting of private sector R&D in support of the agncultural- input industries and the food processing and distribution industries for 1979 would, In my judgment, show total expenditures in excess of $2.0 billion. In companson, public sector agricultural research, performed by the U.S. Department of Agnculture (USDA) and the state agricultural experiment stations, amounted to approximately $1.2 billion in 1979. Since the late 1970s private sector research in the service-based biological and chemical technologies in support of animal heals, plant protection, and plant breeding

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TECHNICAL CHANGE AND INNOVATION IN AGRICULTURE 339 has expanded rapidly. This expansion may have been partially offset by some reductions in research by the farm equipment and machinery industry. It would not be too surprising, when the results of the 1984 Agricultural Re- search Institute survey become available, to find that private sector agncul- tural research had risen to between $2.5 billion and $3.0 billion by 1984 (in 1979 dollars). It also seems likely that a larger share of the total will be accounted for by the input industries than in 1978 and 1979. Despite the tentative data available, a number of relatively clear-cut gen- eralizations can be made. First, private sector R&D has grown more rapidly than public sector agricultural research since 1965. In 1965 private sector R&D probably accounted for about 55 percent of total public and private sector research in support of the food system. By 1979 the private sector share was probably about 65 percent. In both 1965 and 1979 the private sector research effort was apparently divided about equally between agri- cultural inputs and food marketing and distribution Second, the animal drug industry, which allocates over 12 percent of its sales dollar to research, and the pesticide industry, which allocates about 10 percent of its sales dollar to research, are the most research intensive of the agricultural-input industries. The fann machinery industry, which allocates about 3 percent of sales to research, is apparently slightly above the average for all U.S. industry in R&D intensity. The fertilizer industry, on the other hand, spends well below 1 percent of its sales dollar on R&D. The food and kindred products industry apparently allocates less than 0.05 percent of its sales dollar to R&D. (See Ruttan, 1982b:24.) Third, R&D activity in the agricultuIal-input and food industries is focused primarily on product development. The food industry, for example, focuses its effort on new product development but buys its process technology from suppliers. Similarly, the agricultural chemicals industry focuses its efforts on new products but not on the processes used to produce the products. The definition of what is a product or a process innovation is, however, quite arbitrary. A product innovation in the fann machinery industry becomes a process innovation when adopted by agricultural producers. Fourth, there are quite spiking differences in the relative emphasis given to Me several fields of science and technology between the public and private sectors and, within We public sector, between the U.S. Department of Ag- nculture and the state agricultural experiment stations. Close to thirds of private sector R&D is concentrated in the physical sciences and engi- neering. Public sector research is much more heavily concentrated in the biological sciences and technology. At the state agricultural experiment sta- tions, approximately ~ree-quarters of the research is in the biological science and technology area. The share of the research dollar allocated to social science research related to agriculture is less than 5 percent in the private sector and less than 10 percent in the public sector.

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340 VERNON W. RUlTAN Finally, it seems likely that the relative emphasis among research per- formers will undergo substantial change over the next decade. Within the private sector the balance appears to be shifting from the physical sciences and engineering toward the biological sciences and biotechnology. Institu- tional innovations including plant variety registration, legal interpretation favorable to the patenting of new life forms, and the design of regulatory regimes that more effectively differentiate between chemical and biological technologies are providing additional incentives for private sector invest- ment in the development of science-based biological technologies (Office of Technology Assessment, 1984:383~101. As this trend continues public sec- tor research institutions will need to reexamine the allocation of Heir research resources. This will involve a shift in the distribution of research resources from applied toward more basic research. But it does not imply Hat a with- drawal from applied research by the public sector is appropriate. There continue to be important areas of agricultural technology development that do not lend themselves to packaging in the form of proprietary products and hence offer little incentive for private sector research investment. If the public sector were to confine itself to basic research and abandon technology de- velopment, the result would be a slowing of the rate of productivity growth in agriculture. Mechanization Research The appropriate boundary between private and public sector research on mechanization has been a continuing area of con- cem. Two issues have been prominent. One is whether public sector research duplicates or displaces private sector research. A second is who gains and who loses as a result of the introduction of new technology. The critics of public sector research on mechanization have emphasized its effect on labor displacement. However, He best empirical evidence suggests that in the United States the development of mechanical equipment and motive power has been induced by long-term increases in the price of labor. Mechanization In agriculture has been primarily a response to a declining agricultural labor force rather than a major cause of agricultural labor-force displacement (Hay- ami and Ruttan, 1985; Peterson and Kislev, in press). Recent concern about the public funding of mechanization research has been focused by the controversy about He role of the University of California in the development of integrated mechanical and biological technology for production and harvesting of tomatoes and a number of specialty crops. The rationale for public support for research and development of machinery in California has relied on two arguments. One is that many of the specialty crops grown are unique to California. Because of limited acreage and the small market potential, He argument has been made that Here was little incentive for private research and development. A second rationale has been made in terms of improving the ability of California fanners to compete with

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TECHNICAL CHANGE AND INNOVATION IN AGRICULTURE 341 producers in other areas in Me United States, as in the case of tomatoes, or with imports from other counmes, as in the case of strawbemes. Both ar- guments are, In principle, consistent with Me traditional use of the social rate of return as a criterion for public support for agricultural research. The history of the development of the tomato harvester extended over a period of about three decades (de Janvry et al., 1980:97-991. Its development was speeded by Me ending of the bracero program, which permitted Mexican citizens to enter the United States to harvest crops and do other field work. A combination of yield-~ncreasing biological technology and labor-displacing harvest technology enabled California producers to capture a large share of the processed tomato market from the older producing areas in Me Midwest and the East. Initially, this led to an increase in demand for labor in tomato production. Later, however, it led to the displacement of harvest labor. The implications for state economic development were ambiguous. The gains to producers exceeded the losses to workers by a substantial margin. But since the losers were typically poor and the gainers relatively well off, a major issue of equity was involved. And Me equity issue was exacerbated by the fact that, while the gains were sufficient to compensate for the losses, com- pensation was not made (Schmitz and Seckler, 1970; Brandt and French, 1983). The implication of the mechanization debate for research policy seems reasonably clear. The private sector has been an effective source of new mechanical technology. Lack of knowledge has seldom been a serious con- straint on advances in mechanical technology for agriculture. Some observers believe that the Blackwelder Company would have developed a fully effective tomato harvester by the early 1970s, even without the pariicipahon of the University of California. The development of the mechanical cucumber har- vester in Michigan points to a similar conclusion. For both Me tomato and die cucumber harvester, Me demand-side impetus for commercial develop- ment associated with Be ending of the bracero program appeared to be more important than the supply-side public sector research effort. The social rate of return provides a weak rationale for substantial federal support for research and development of mechanical equipment for agncul- ture. The rationale for support by state agricultural experiment stations must be primarily in terTns of local rather than national benefits. Any rationale for public sector mechanization research must draw more heavily on Be edu- canonal, Ban on the social rate of retum, cntenon. Development of Plant Varieties In the United States the seed industry evolved along two relatively distinct lines. The private sector tended to be the predominant source of new varieties for Be home gardener and for horticultural crops. The public sector tended to be the dominant supplier of new varieties for field crops. This pattern began to change with the advent

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342 VERNON W. RUITAN of hybrid corn. Control of inbred lines capable of serving as the parents for superior hybrids enabled the private sector to establish propnee~y control over new hybrid corn vaneties. In the mid-1970s, over 80 percent of the corn and sorghum varieties used in commercial production and approximately 70 percent of the sugarbeet and cotton varieties were private varieties. Over 80 percent of the rye, wheat, oats, soybeans, rice, barley, peanuts, dry edible beans, and forage grasses were public vaneties. The rawer complex public sector involvement in varietal crop develop- ment, seed certification, and varietal recommendations that prevails In the United States can be illustrated using the State of Minnesota as an example. Individual variations exist from state to state but the general features are similar. When the performance of a new public variety of soybeans developed by the Minnesota Agricultural Experiment Station warrants seed mulupli- cation, breeder seed is released by the station to the Minnesota Crop Im- provement Association for multiplication. The association, a nonprofit corporation whose owners are mostly farmers and seed companies, has also been designated by the state legislature as the official seed-certifying agency in Minnesota. To assure the quality of the seed grown by seed growers, Me association cames out field inspection of the seed crops and conducts lab- oratory tests for purity and viability on samples taken from the growers' processed seed before issuing certification ceriif~cates and labels. Minnesota's system has been remarkably effective in the generation and distribution of new seed vaneties. It has also been an important factor in maintaining a competitive structure in the seed industry. However, it is highly dependent on the level of public support for plant breedin, and varietal development. In the United States, the first legislation protecting plant varieties was passed in 1930. The Plant Patent Act of 1930 extended patenting rights to breeders of a number of asexually reproduced plants. In 1970 the U.S. Congress passed a Plant Vanety Protection Act, which was developed by a committee of the American Seed Trade Association. The 1970 act covered seeds, transplants, and plants of about 350 species. Several "soup vegetable" species (tomatoes, carrots, cucumbers, okra, celery, and peppers) were omit- ted because of objections by canners and freezers. There was also substantial opposition to the act from scientists and breeders in the state agricultural experiment stations and from the U.S. Department of Agriculture. It was argued that adequate consideration had not been given to such factors as (a) variability in crop performance and genetic drift under different environ- mental conditions and (b) the exchange of information and germ plasm among public and private breeders. Expenence with the 1970 act resulted in a mlmber of changes in perception regarding the effect of variety protection. Most participants in the debate have concluded that the act has encouraged expansion of plant breeding in

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TECHNICAL CHANGE AND INNOVATION IN AGRICULTURE 343 He private sector. Fears that the act would lead to excessive litigation have not been realized. A good deal of the opposition to variety protection by public sector breeders has disappeared. And the canning and freezing industry did not register opposition to inclusion of the "soup vegetables" when the act was amended in 1980. (The 1980 amendments also extended the period of protection from 17 to 18 years in conformity with the provisions of the International Convention for the Protection of New Varieties of Plants.) The concern about the free flow of scientific information among public and private breeders has not been fully resolved. At present much germ plasm that does not have variety status is being released by the USDA and the state agricultural experiment stations. It is elite germ plasm or parental lines useful for breeding but not for immediate cultivation. It has no legal status under the Plant Variety Protection Act. A partial response to this concern is that the U.S. legislation does not restrict the use of a variety registered under the Plant Variety Protection Act in the breeding program of either a public or private breeder. A definitive evaluation of the effects of protecting plant varieties on the performance of private sector vane/al-improvement efforts is sull premature. Experience with hybrid maize, for which propnetary inbred lines have pro- vided even more secure protection than the provisions of legislation, is not entirely reassuring with respect to the efficiency of private sector breeding programs. Inbred lines developed by public sector breeders continue to ac- count for well over 50 percent of hybrid maize seed production in the United States. The private seed companies continue to make only limited investments in the supporting sciences, such as genetics, plant pathology, and plant physiology. Perspective In the two areas examined in this chapter R&D on mechanization and plant varieties the appropriate balance between public and private sector research and development is being subjected to intensive scrutiny. Yet He broad implications of the case studies seem clear. Research directed to advancing mechanical technology should remain a low priority in the allocation of public sector research resources. Market incentives have been adequate to induce substantial private sector innovative effort and a rapid rate of improvement in mechanical technology. The level of public sector research on mechanization is more appropriately guided by He demands arising out of educational needs rather than the demand for new technology. Continuation of strong public sector involvement in research and devel- opment directed to improving plant varieties is clearly warranted. The social rate of return to public sector research remains high. Advances in technology

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346 - c in 10 _ i; J C 5 J o - C Cal - C: .' C .' ,_ 1 _'p~ C" o C C: J C: C: C (YEA) E, (48 ) / i' . Ma ~ 71 ) Ta(72l ' Japan 1980 Net93~1 i91 ~ Be (971 "'\" _~ _~ Amp,. ! / . Ph(49) Japa~n 1B$0 Sr ( 51 ) It(881~ark f Swt (94.)F,ancel980 (9C ~' .. ~ Au(92J At/: . U K 1980(97) ." YUL6714~-/ "' · Denmark 1880 / .: ..'0 tnt44i (46} ,. / a, ,. · · V7u(5~/ France 1880~51.' U i< 1880 (84) , " Brt55) . ~ . ,~Me(56) ~ ' 1880(45} Ch (77) Pet57) ,, SA(72 ~ . ' ,.""' ,. .'0 ' "A Par {40) .'~ 0.1 - , .. . 1 5 10 VERNON W. RU=AN .' NZ(88 ,.' USA 1980t9 ~ Ca 194) Art84) -' ,,.~\ Idiom .,.~00 ~ \` 'a;-' AGRICULTURAL OUTPUT PER MALE WORKER l LOG SCALE ) . _ .';' ~ b Aus .~0 (93 50 100 250 ''a'' FIGURE 1 Histoncal grown paths of a~culn~ral productivity of Denmark, France, Ja- pan, the United Kingdom, and the United States for 188~1980, compared win inter- coun~y cross-seciion observations of selected counties in 1980. Values in parentheses are percentage of male workers employed in nonagriculture. SOURCE: Data from Yujiro Hayami and Vernon W. Runan, Agricultural Development: An International Perspective, 2d ed. (Baltimore, Md: Johns Hopkins University Puss: 1985, Appendixes. SYMBOL KEY Argenima: Ar Greece: Gr Portugal: Po Australia: Aus India: En South Africa: SA Austria: Au Ireland: Ir Spain: Sp Bangladesh: Ba Israel: Is Sn ~ finks: Sr Belgium (and Italy: It Suriname: Su Luxembourg): Be Japan: Ja Sweden: Swe Brazil: Br Libya: Li Switzerland: Swi Canada: Ca Mauritius: Ma Syria: Sy Chile: Ch Mexico: Me Taiwan: Ta Colombia: Co Netherlands: Ne Turkey: Tu Denmark: De New Upland: NZ United Kingdom: UK Egypt: Eg Norway: No United States of America: USA Finland: Fi Pakistan: Pak Venezuela: Ve France: Fr Paraguay: Par Yugoslavia: Yu Germany, Federal Peru: Pe Republic of: Ge Philippines: Ph

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347 U3 en C~ C) - C) Ct Ct C~ C~ - V' ._ . . - - - C) ._ C~ 6 U. C) ._ - C) ~: C~ CC - 3 o ~D C~ Ct 1 o oo o~ o o ~r G~ o _ 8 XO X _ _ _ o U~ _ o ~ ~ _ o oo — C~ — ~ X t— - . — ~ C' — 'J' 'd' d C~ ~ ~ o C~ ~ ~ C~ ~ ~ — o _ t_ ~ _ —, · _ t_ ~ \c _ —} ~ ~ V~ ~ 8 o — 1— ~ O ') ~ — O ~ ~ O O ~ — ~ C~ \0 0 e' ~ ~ — G~ O ~ — _ ~ ~= — o o~ ~ _ o °- ~ ~ - C~ ~ o ~ X o X X _ ~ _ ~ _ x o oo \= _ ~ o o~ ~ ~ _ o - Co ~ ~ — o ~ x oo ~ ~ ~ ~ cx u~ ~ ~ ~ — ~, - O ~ ~ ~ ~ r~ x —d {~> o ~ ~ ~ ~ ~ - O ~ ~ ~D O ~D X d — O O O ~ - x - ~ - ~ - ~ ~ c~ crX t - - oo ~ o x ~ ~ — ~—~ '] o ~ ~ ~ ~ ~ · ~ ~ x ~ ~D O et ~ ~ ~ er ~ ~ ~ o o o - e2 X _ - - c': c~ - - c) ~ ~ ~3 - ~ c) :c; - - - c) D c~ C5 C~ oC o 3 ~ _

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348 VERNON W. RU7TAN The relative prices of land and labor also differed sharply in the two countries. In 1880 in order to buy a hectare of arable land (compare row 8 and row 16 in Table 5), it would have been necessary for a Japanese hired farm worker to work ~ times as many days as a U.S. farm worker. In the United States the price of labor rose relative to the price of land, particularly between 1880 and 1920. In Japan the price of land rose sharply relative to the price of labor, particularly between 1880 and 1900. By 1960 a Japanese farm worker would have had to work 30 times as many days as a U.S. fann worker in order to buy 1 hectare of arable land. This gap was reduced after 1960, partly due to extremely rapid increases in wage rates in Japan during the two decades of "miraculous" economic growth. In the United States land prices rose sharply in the postwar period, primarily because of the rising demand for land for nonagricultural use and the anticipation of continued inflation. Yet, in 1980 a Japanese fann worker still would have had to work 1 1 times as many days as a U.S. worker to buy 1 hectare of land. Despite these substantial differences in land area per worker and in the relative prices of land and labor, both the United States and Japan experienced relatively rapid rates of growth in production and productivity in agriculture. Overall agricultural growth performance for the 100 years covered in Table 1 was very similar in the two countnes. In both countries total agncultural output increased at an annual compound rate of 1.6 percent while total inputs (aggregate of conventional inputs) increased at a rate of 0.7 percent. Total factor productivity (total output divided by total input) increased at an annual rate of 0.9 percent in both countries. Meanwhile, labor productivity, as measured by agricultural output per male worker, increased at rates of 3.1 percept per year in the United States and 2.7 percent in Japan. It is remarkable that the overall growth rates in output and productivity were so similar despite the extremely different factor proportions and absolute productivity levels Mat characterize the two countries.7 Although there is a resemblance in the overall rates of growth in production and productivity, the timung of the relatively fast-growing phases and Me relatively stagnant phases differs between the two countnes. In Me United States agricultural output grew rapidly up to 1900; then the grown rate decelerated (Table I). From the 1900s to the 1930s, there was little gain in total productivity This stagnation phase was succeeded by a dramatic rise in production and productivity in the 1940s and 1950s. Japan experienced rapid increases in agricultural production and productivity from 1880 to the 1910s, then entered into a stagnation phase, which lasted until the mid-1930s (Table 21. Another rapid expansion phase commenced during the period of recovery from the devastation of World War II. Roughly speaking, the United States experienced a stagnation phase two decades earlier than Japan and also shifted to Me second development phase two decades earlier. The effect of relative prices on the development and choice of technology

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TECHNICAL CHANGE AND INNOVATION IN AGRICULTURE 500 r _ 1 0 C, o - C, By by Ad IS J ~ 50 m Is cr: Is 100 U] G ~ 10 Cat :E CL CL it LU ~ 1 E LtJ LO 349 -a o . o o United States 0 Japan o o o a o . o . o · 0 o · 0 . 0 a . Oo ° . . . . 0~05 0.1 0.5 1 2.5 FERTILIZER-ARABLE LAND PRICE RATIO (LOW) FIGURE 2 Relation between fertilizer input per hectare of arable land and femlizer.arable land price ratio ~ = hectares of amble land that can be purchased by 1 ton of N ~ P2O5 ~ K2O contained in commencal fertilizers), He IJnited States and Japan, quinquennial observations for 1880-1980. SOURCE: Data from Yuj~o Hayami and Venison W. Ruth, Agricultural Development: An Interrmtiorzal Perspective, 2d ed. (Baltimore, Md. Johns Hopkins University Press, 1985), Appendix C. is illustrated for biological technology in Figure 2: U.S. and Japanese data on the relationship between fertilizer input per hectare of arable land and the fertilizer:land price ratio are plotted for the period 1880 to 1980. In both

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350 VERNON W. RU7TAN 1880 and 1980 U.S. farmers were using less fertilizer than Japanese farmers. However, despite enormous differences in both physical and institutional resources, the relationship between these variables has been almost identical in the two countries. As the price of fertilizer declined relative to over factors, scientists in both countries responded by inventing crop varieties Tat were more responsive to fertilizer. American scientists, however, always lagged behind the Japanese by several decades because the lower prices of land relative to the price of fertilizer in the United States resulted in a lower priority being placed on yield-increasin~ technology. The effect of changes in the relative prices of mechanical power and labor in the United States and Japan for 1880-1980 is illustrated in Figure 3. In both 1880 and 1980 U.S. farmers were using more mechanical power than Japanese farmers. But Me relationship between the power:labor price ratio and the use of power per worker is, again, almost identical in the two countries. But because labor was always less expensive in Japan, the Japanese suppliers of mechanical technology always lagged behind U.S. suppliers bv several decades. . ~ , The same relationships that hold for Japan and the United States have now been demonstrated for the period 1880-1960 for a number of European countries. The relationship has also been tested and confirmed in using contemporary cross sectional data.8 The effect of ~ rise in the price of fertilizer relative to the price of land or of the price of labor relative to the price of machinery has been to induce advances in biological and mechanical technology. The effect of the intro- duction of lower cost and more productive biological and mechanical tech- nology has been to induce farmers to substrate fertilizer for land and mechanical power for labor. These responses to differences in resource endowments among countries and to changes in resource endowments over time by ag- ricultural research institutions, by the farm supply industries, and by farmers, have been remarkably similar despite differences in cultures and traditions. The results of these comparative analyses can be summarized as follows: Agricultural grown in We United States and Japan during the period 1880- 1980 can best be understood when viewed as a dynamic factor-subst~tution process. Factors have been substituted for each over along a metaproduction function in response to long-run trends in relative factor prices. Each point on the metaproduction surface is characterized by a technology that can be described in terms of specific sources of power, types of machinery, crop vaneties, and animal breeds. Movements along this metaproduct~on surface involve technical changes. These technical changes have been induced to a significant extent by the long-term trends in relative factor prices. Technical change in agriculture has, of course, not been wholly induced by economic forces. In addition to Me effects of change (or differences) in resource endowments and growth in demand, technical change may occur

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TECHNICAL CHANGE AND INNOVATION IN AGRICULTURE 150 - LL - y o o ~ _ LL ~ A Z .t 1 0 LU 5 CE ~ O LL laL' of O I 6 1 0.5 _ . . . . a . 351 united States ° Japan . . so :. .. a a a . 1 ~ Go O OoOOp°Oo 25D 10 25 50 1 Do POWER-LABOR PRICE RATIO (LOG.) FIGURE 3 Relation between farm draft power per male worker and power:labor price ratio ~ = hectares of work days that can be purchased by 1 horsepower of tractor or draft animal), the United States and Japan, quinquennial observations for 188~1980. NOTE: Number of male workers = US and J3; power = U7 ~ Us and J7 ~ J8; land price = Ul9 and Jl9; power price = average retail puce of tractor per horsepower extrapolated by U21 from the 1976-1980 average of $216 for the United States, and extrapolated by J21 from the average of 65,170 yen for Japan. SOURCE: Data from Yuj~o Hayarru and Vemon W. Ruth, Agricultural Development: An International Perspective, 2d ed. (Baltimore, Md.: Johns Hopkins University Press: 1985), Appendix C.

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352 VERNON W. R~^ in response to autonomous advances in scientific knowledge. Progress in general services that lowers the "cost" of technical and institutional inno- vations generates technical changes that are unrelated to changes in factor endowments or product demand. Even in these cases, however, the rate of adoption and the impact on productivity of autonomous or exogenous changes in technology will be strongly influenced by conditions of resource supply and product demand. IMPLICATIONS AND LESSONS Over the past 50 years, U.S. agriculture has been transformed from a resource-based industry to a science-based industry. It has been transformed from a traditional to a high technology sector. Relatively few sectors in the U.S. economy have been able to maintain their technological leadership to achieve or maintain world class. Agriculture is one of those sectors. The future grown of the U.S. economy will depend very heavily on Nose sectors that are able to maintain their technological leadership that can continue to generate growth dividends resulting from productivity group. What are some of Me lessons that can be drawn from the agricultural research system Cat may be relevant for research policy in other sectors of the economy? The first lesson is that the process of technical change in agriculture reflects a much more complex pattern of entrepreneurship than Me relatively simple Schumpeterian view. Much of modem biological technology is the product of the insight, skill, and energy of a group of scientific entrepreneurs who have been employed in public sector institutions primarily the Agricultural Research Service of the U.S. Department of Agriculture and the state ag- ricultural experiment stations. This public sector entrepreneurship has been effective because it has been closely articulated with the interests of both fanner clientele and die private sector suppliers of agricultural technology. Agriculture shares, with the other science-based sectors of the U.S. economy, a complex pattern of articulation between public and private sector entre- preneurship (Nelson, 19821. The opportunities for successful entrepreneur- ship in both the generation and the use of new agricultural technology are strongly conditioned by changes in resource endowments and in factor and product markets. The opportunities for the advancement of mechanical tech- nologies in societies in which wage rates are low are relatively limited. The opportlmities for advancing biological and chemical technologies are weak in an environment characterized by abundant land resources. A second lesson that should be reamed from the agricultural research experience is that both institutional and project support for research have important roles to play in inducing effective research performance. There has been a good deal of criticism of the institutional-support approach Mat is used to provide core funding at the state agricultural experiment stations, ;

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TECHNICAL CHANGE AND INNOVATION lN AGRICULTURE 353 the USDA laboratories, and at a number of other federal laboratories (the national energy laboratories, for example). Some critics have seemed to imply that if research is not funded by competitive grants, it cannot be good re- search. Experience is somewhat more complex. Institutional funding is clearly necessary to assure the continuity of infrastructure and staff to pursue long- term basic and applied research agendas. It is doubtful that the long-term effort to adapt soybean varieties to more northern environments by the Min- nesota Agricultural Experiment Station could have been sustained under a series of competitive grants. But a competitive grant system can be a creative device for the support of h~gh-risk applied research and for supporting the advance of new research frontiers until their potential for technology devel- opment becomes more apparent. Much of the work in molecular biology that is now leading to advances in genetic engineering was supported through competitive grants from the National Science Foundation and the National Institutes of Health. It will now take longer-term institutional support, both in the public and private sectors, to translate much of this new knowledge into new biological technology in the fields of human and animal health and In crop production. A third lesson that we should have learned from the history of agricultural research is that any sector of the economy that is to achieve or maintain "world class"—that is, to remain competitive in the world economy must be sustained by a carefully articulated program of public and private sector support for and performance of research and development. In framing this appropriate mix of public and private sector research, it is important that we avoid simplistic decision rules. The argument that the public sector should limit its support to basic research and the private sector should assume responsibility for supporting applied research is clearly one of the oversim- plifications that should be avoided. The question that should be asked is whether there are sufficient economic incentives to induce an efficient level of private sector research. There are broad areas of what might be te:Tned "genenc" applied research in which such incentives do not exist. In some cases the lack of incentive is related to industry structure. In others, it is inherent in the technology itself. There is clearly a need for a more adequate understanding of the forms of institutional design that are conducive to public sector entrepreneurship in those areas In which the gains from private sector research and development are limited.9 In Be case of agriculture, it appears that the decentralized national-state or prefectural research system has been important in guiding the direction of technical change. A fours lesson from the history of agricultural research is that rapid growth in demand is not a necessary condition for rapid productivity growth. A In He United States and in other developed countnes, the rate of grown in demand for agricultural commodities has rarely exceeded 2 percent per year during the last century. Yet relatively modest investments in agricultural

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354 VERNON W. RUITAN research, primarily by Me public sector, have been capable of generating grown in output per worker in the 6 percent range and in output per unit of total input In the range of 2 percent per year. It also seems quite clear, given the large share of employment in the agricultural sector at We beginning of the modernization process, that this labor displacement has generated enor- mous grown dividends. It has generated grown dividends by the release of workers to sectors of the economy that were experiencing rapid grown in demand. And it generated large growth dividends in the fonn of lower real costs of the commodity component of food and fiber. It has been possible, through rapid productivity grown, for U.S. agn- culture to retain and even enhance its global class status while the share of the total labor force employed in agriculture was declining from approxi- mately 26 percent In 1925 to 3.4 percent in 1984. Employment In the man- ufactunng sector has declined from 26 percent to 1950 to 20 percent in 1984. But the decline In employment In manufactunag, particularly since the m~d- 1960s, seems to be due at least as much to loss of capability to compete In world markets as to rapid grown in labor productivity. It is not hard to visualize an American economy in which the manufacturing labor force has declined to lithe more than 10 percent of Me total labor by Me year 2000. The challenge to Me manufacturing sector is to achieve this transfonnai~on while enhancing rather dean eroding its compeii~ve position in world markets. NOTES 1. See, for example, Feder et al. (1985) and Haying and Ruttan (1985: Oh. 9). 2. The material in this section, "The Contribution of Research to Productivity Grown," is treated in more. detail in Evenson et al. (1979) and Ruttan (1980 and 1982a). 3. In this chapter I deliberately avoid residing the concept of innovation to the narrow Schum- petenan definition. I have argued elsewhere that the Schumpetenan concept of innovation is analytically inconvenient. The term innovation is more appropriately used to refer to the entire range of processes by which "new things" emerge in science, technology, and art. The tend innovation can then be defined as that subset of Ovations that are patentable (Ruttan, 1959). 4. This section is treated in more detail in RUTH (1982a and 1982b). 5. The results of the Agncultural Research Institute (ARI) studies are reported in Wilcke and Sprague (1967) and ~ Wilcke and WiBiaTnson (1977). A new survey of private sector agn- cultural research was initiated by the ARI in 1984. The Hicks theory was criticized by Salter (1960) and others for its lack of a proper micrm economic foundation. After an extensive series of exchanges, the theory of induced innovation had, by the mid-I97Os, been placed on a more adequate microeconomic foundation. For a review of the literature, see Binswanger (1974) and Binswanger and Ruttan (1978:13-43). Output per hectare has traditionally been much higher in Japan and output per worker much higher ~ the United States. Prior to the mid- and late-1960s, it could be armed that, given the differences m land prices and wage rates between the two countries, Japanese agriculture was relatively "efficient." With rapid growth in nonfarm labor demand and rising wage rates, Japanese agriculture has, since the late 1960s, become increasingly "inefficient" in compar- anve teens. For a discussion of adjustment problems in Japanese agriculture see Hayami (1982). 6. 7.

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TECHNICAL CHANGE AND INNOVATION lN AGRICULTURE 355 8. For more rigorous econometric tests of the relationship presented in Figures 2 and 3, see Binswanger and Ruttan (1978) and Hayed and Ruttan (1985). 9. This view is consistent with the conclusions drawn by Nelson (1982) and his associates in a major cross-industry analysis of the role of government in technical progress. The Nelson study suggests that it is difficult to find any global-class U.S. industry that has not benefited sig- nificantly from government support or stimulation of R&D. 10. The view that technical change is largely induced by growth in demand has been Articled by Mowery and Rosenberg (1979). Their review of the literature suggests that many of the investigations that purported to demonstrate primacy of growth in demand in the innovation process were seriously flawed. REFERENCES Binswanger, Hans P. 1974. A microeconomic approach to induced innovation. Economic Journal 84 (December):94~958. Binswanger, Hans P., and Vernon W. Ruttan, eds. 1978. Induced Inrzovanon: Technology, Inszi- z-uzions and Development. Baltimore, Md.: Johns Hopkins University Press. Brandt, John P., and Ben C. French. 1983. Mechanical harvesting end the Cal~omia tomato industry: A simulation analysis. American Journal of Agncakural Economics 65:265-272. Brewster, John M. 1950. Me machine process in agnculn~re and industry. Joz~rna1 of Farm Eco- nomzes 32 (Febn~ary):69-81. de Janvry, Alain, Philip LeVeen, and David Rotten. 1980. Mechanization of California: The Case of Canning Tomatoes. Department of Agncultural and Resource Economics. Berkeley: University of California. Evenson, Robert E., Vernon W. Ruttan, and Paul E. Waggoner. 1979. Economic benefits from research: An example from agnculture. Science 205:1101-1107. Feder, Gershan, Richard E. Just, and David Zilberman. 1985. Adoption of agncultu~al innovations developing countnes: A survey. Economic Development and Cuin~ral Change 33 (January):255- 298. Griliches, Zvi. 1957. Hybrid cam: An exploration in the economics of technical change. Econo- metrica 25:501-522. Hayanii, Yujiro. 1985. Adjustment policies for Japanese agriculture in a changing world. Pp. 368- 392 in Emory N. Castle and Kenzo Hemmy, with Sally A. Skillings, eds., U.S.-Japanese Agricultural Trade Relations. Baltimore, Md.: Johns Hopkins University Press and Resources for the Future. Hayami, Yujiro, and VerIlon W. Ruttan. 1985. Agricultural Development: An International Per- specave. 2d ed. Baltimore, Md.: Johns Hopkins University Press Hicks, John R. 1932. Ttze Theory of Wages. London: Mac~iBan. Malstead, Illona. 1980. Agnculn~re: The relationship of R&D to federal goals. Photocopy. Wash- ington, D.C. Mockery, David C., and Nathan Rosenberg. 1979. The influence otmarlcet demand upon innovation: A critical review of some recent empirical studies. Research Policy 8 (April):103-153. Mueller, W. F.' J. Culbertson, and B. Peckhorn (win J. Croswell and P. Kaufman). 1980. Market Sz~cnwe and Technological Performance in the Food M~facn~nng Industnes. College of Agriculture and Applied Sciences. Madison: University of Wisconsin. Nelson, Richard R. 1982. Government stimulus of technological progress: Lessons from American history. Pp. 45 1-482 in Richard R. Nelson, ea., Government and Technical Progress: A Cross- Industry Analysis. New York: Pergamon. Office of Technology Assessment. 1984. Commercial Biotechnology: An Intern~zonal Analysis. OTA-BA-218. Washington, D.C.: U.S. Government Printing Office.

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356 VERNOIV W. RUTTAN Peterson, Willis and Yoav Kislev. In press. The cotton harvest in retrospect: Labor displacement or replacement. Journal of Economic History. Ruttan, Vemon W. 1959. Usher and Schumpeter on invention, innovation and technological change. Quarterly Journal of Economics 13 (November):596-606. Ruttan, Vemon W. 1980. Agnculn~ral research and the future of American agnculture. Pp. 117- 155 in Sandra S. Batie and Robert G. Healy, eds., The Future of American Agriculture as a Strategic Resource. Washington, D.C.: The Conservation Foundation. Ruttan, Vernon W. 1982a. Agricultural Research Policy. Minneapolis: University of Minnesota Press. Ruttan, Vernon W. 1 982b. The changing role of the public and private sectors in agricultural research. Science 216:23-29. Ruttan, Vemon W. 1983. Statement on some lessons from agricultural research. Pp. 415-455 in Industrial Policy Hearings, Subcommittee on Economic Stabilization. Committee on Banking, Finance and Urban Affairs, U.S. Congress, House, Senal No. 98~5. Washington, D.C.: U.S. Govemment Printing Office, 1983. Salter, W. E. G. 1960. Productivity and Technical Change. New York: Cambridge University Press. Schmitz, Andrew, and David Seckler. 1970. Mechanized agriculture and social welfare: The case of the tomato harvester. American Journal of Agricultural Economics 50 (November):469-477. Schmoolcler, Jacob. 1962. Changes in industry and in the state of knowledge as dete~inants of indusmal invention. Pp. 195-232 in Richard R. Nelson, ea., Rate and Direction of Inventive Activity. Princeton, N.J.: Princeton University Press. Schmookler, Jacob. 1966. Invention arid Economic Growth. Cambridge. Mass.: Harvard University Press. W~lcke, H. L., and H. B. Sprague. 1967. Agricultural research and development by the private sector of the United States. Agricultural Science Preview 5 (1967):1-8. Wilcke, H. L., and 3. C. Williamson. 1977. A Survey of U.S. Agricultural }research by Private Industry. Washington, D.C.: Agricultural Research Institute.