The Value of Agricultural Research and Development
Federal financial support for research and development (R&D) in food and agriculture is a critical policy instrument that the U.S. and other governments use to enhance agricultural productivity and improve the economic and environmental performance of the food and agricultural sectors. For over 100 years, R&D has contributed to a transformation of the U.S. food and agricultural sectors. It has fueled productivity growth and enabled U.S. farmers to generate more product per acre and per farmer with smaller input (e.g., water) per unit product. Research-induced improvements in productivity have helped U.S. agriculture to remain competitive in increasingly integrated global commodity markets and to achieve an environmentally sustainable supply of safe, nutritious, and lower-cost food, feed, fiber, and biomass for energy and other uses (Pardey et al., 2013).
Agricultural and food R&D sustains the agricultural workforce, the well-being of producers, rural and community development, food processing, food safety, nutrition, health, and consumer well-being (NRC, 2010a). It also helps to sustain various ecosystem benefits by reducing adverse externalities from agricultural production and other sectors of the economy (such as biodiversity loss). For example, enhancing the efficiency of production can reduce the adverse environmental effects of agriculture, and the use
of conservation tillage and other crop-management methods can improve soil quality and can reduce fertilizer and other chemical use and runoff.
The most recent data indicate that U.S. consumers spent $1.3 trillion for food in 2011 (USDA-ERS, 2012a), which is equivalent to about 8% of the U.S. gross domestic product (Ag Marketing Resource Center, 2013). In 2012, the United States exported over $135 billion and imported $103 billion in agricultural products. The net export of $32 billion contributes to the U.S. trade balance (USDA-ERS, 2012b). Moreover, the United States remains the world’s leading provider of international food aid (Hanrahan et al., 2011).
The United States remains a major contributor to the global food and fiber economy, but its relative contribution has decreased. In 1961, the United States accounted for 14.8% by value of the world’s entire agricultural output.1 By 2010, that share had declined to a still sizable 10.6%, with the Asia and Pacific region (including India and China) accounting for 48.6% of world agricultural output (compared with 29.1% in 1961). Nonetheless, the United States continues to be a major producer of many important food and feed commodities. In 2010, the United States accounted for 37.4% of the world’s corn, 34.6% of soybean, 15.8% of sorghum, and 9.2% of wheat production.
The global prominence of the United States as a producer and exporter of food and other agricultural commodities and its competitiveness in increasingly integrated international markets are inextricably tied to research-induced improvements in agricultural productivity (Shane et al., 1998). Even though rates of return on productivity-enhancing research are demonstrably high, the growth in public and private spending on agriculture and food R&D in the United States has been slowing, and the share of public funds focused on farm productivity-enhancing research has declined.2 Those surprising trends have led to a slowdown in U.S. farm productivity growth at a time when the market has begun to signal the end of a sustained period of more than 50 years of global agricultural abundance.
Agricultural productivity growth has contributed remarkably to abundances of food and other agricultural products. For example, U.S. corn production increased from 2.7 billion bushels in 1900 to just under 12.4
1Calculations based on data reported in FAO (2012).
2Pardey et al. (2013a) reported that in 1976 about 65% of all state agricultural experiment station (SAES) research was oriented toward maintaining or enhancing farm productivity. That share rose to a contemporary peak of 69% in 1985 and had declined to only 56% of SAES research by 2009.
billion bushels in 2011, or 37.4% of the entire world’s output of this crop (FAO, 2012; USDA-NASS, 2012). The increase was a result of increasing yields on a per-acre basis as the amount of land used for corn production decreased.3 U.S. corn yields increased from an average of 28.1 bushels per acre in 1900 to 147.2 bushels per acre in 2011—a growth rate of 1.5% per year. Although some of the yield growth resulted from increases in the quantities of inputs used by farmers (such as fertilizers, herbicides, seeds, machinery, fuel, and irrigation), a sizable share of the measured growth in productivity reflects changes in the quality of inputs (such as the development of new varieties of corn, especially hybrid, and more recently, genetically engineered varieties), which stemmed from investments in R&D.4
The total value of U.S. agricultural output from 1949 to 2007 increased from $29.9 billion to $281.5 billion (Pardey and Beddow, 2013). However, the increase in aggregate input use has been comparably modest so that achieving the same output absent any productivity growth since 1949 would have required 78% more inputs. Put another way, productivity growth since 1949 saved $219.6 billion worth of inputs in 2007. In more concrete terms, an additional 729.5 million acres combined with an additional farm labor force of 1.76 million full-time annual equivalents and many more other inputs would have been needed to produce the 2007 output with 1949 technology.
Research-induced growth in U.S. agriculture and food productivity and production in the 20th century was remarkable in terms of the economic returns on the public dollars invested in that research. The research is carried out by national agencies (mainly USDA) and state agencies (mainly state agricultural experiment stations [SAESs]). Considering the SAES research, the national benefit-cost ratio for the investments averages $32 for every dollar invested in research, and returns on the investments range from 10:1 to 69:1, depending on the state in which the research is conducted (see Table 2-1). USDA intramural research resulted in a national benefit-cost ratio of 17.5:1—still a substantial social return on investment although it is generally lower than the national benefit-cost ratio for research and extension conducted by the states. These high rates of return illustrate a
3Although the long-run trend is a reduction in corn acreage relative to the acreage of 1900, corn acreage declined from 94.9 million acres in 1900 to 54.6 million in 1969 and had increased to 84.0 million acres in 2011.
4The 2010 National Research Council report entitled The Impact of Genetically Engineered Crops on Farm Sustainability in the United States concluded that “Farmers who have adopted GE crops have experienced lower cost of production and obtained higher yields in many cases because of more cost-effective weed control and reduced losses from insect pests” (NRC, 2010a, p. 9).
TABLE 2-1 Marginal Benefit-Cost Ratios for Public Research and Extension in the United States (expressed in present values of benefits and costs)
(dollars of benefits per dollar of costs)
|State or Region||Own State||National|
SOURCE: Adapted from Alston et al. (2011).
remarkably profitable undertaking for the nation but also suggest persistent underinvestment (Alston et al., 2011) and possibly forgone opportunities.5
A progressive slowing of U.S. (and global) agricultural productivity growth from the historically high growth rates of the 1960s, 1970s, and 1980s has been observed in the last 20 years (Table 2-2). In every region of the United States, average annual multifactor productivity growth rates for the more recent period, 1990–2007, were significantly lower than in the previous period, 1949–1990. The national average rate decreased from 2.02% per year in 1949–1990 to 1.18% per year in 1990–2007 (Pardey et al., 2013a). If the more recent, lower rate of multifactor productivity growth is sustained over the coming decades, the future path of U.S. agriculture will be much less prosperous than if productivity growth rates could be restored to those of the 1970s or 1980s.
To illustrate the magnitude of this effect, Alston et al. (2010, Chapter 11) projected U.S. agricultural multifactor productivity growth in alternative research spending scenarios. In a pessimistic scenario, with R&D spending growing in real terms at the 1990–2002 rate, the future rate of agricultural productivity growth slowed to just 0.11% per year during the 2040s, less
5An optimal strategy would be to increase spending on R&D until the marginal dollar spent earned a dollar in benefits, thus driving the marginal benefit-cost ratio down to 1. This conceptual link between high benefit-cost ratios results in the implication to call for more funding.
|Regionsa||Average Annual Productivity Growth Ratesb (% per year)|
aThe regions are as follows: Mountain—Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, Wyoming; Northern Plains—Kansas, Nebraska, North Dakota, South Dakota; Southern Plains—Arkansas, Louisiana, Mississippi, Oklahoma, Texas; Central—Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio, Wisconsin; Southeast—Alabama, Florida, Georgia, Kentucky, North Carolina, South Carolina, Tennessee, Virginia, West Virginia.
bThe entries in this table are national (48 state) and regional and national (48 state) estimates of multifactor productivity growth rates that account for changes in the use of 58 categories of inputs in the periods examined: 32 categories of labor inputs, 12 categories of capital inputs (including 7 physical capital categories and 5 biological capital categories), 3 land categories, and 11 material input categories.
SOURCE: Pardey et al., 2013b. Reprinted with permission from AGree.
than one-tenth the rate achieved during 1942–2002 (which was 1.96% per year). Even in an optimistic scenario, with the real growth rate of R&D spending restored to that of 1949–2002, the rate of agricultural productivity growth would at first continue to decline and then recover only gradually to average 1.3% per year during the decade of the 2040s, given the long lags between investing in R&D and realizing the improved productivity performance attributable to the investment.
U.S. Agriculture in a Global Context
The United States remains the leading investor in agriculture and food R&D worldwide, but that leadership position has been eroded in recent decades. In 1980, the United States accounted for 23.1% of the $24.2 billion (in 2005 dollars based on purchasing-power parity exchange rates6)
6Purchasing power parity is defined as “the rate of currency conversion that equalize[s] the purchasing power of different currencies by eliminating the differences in price levels between countries. In their simplest form, purchasing power parities are simply price relatives that show the ratio of the prices in national currencies of the same good or service in different countries” (OECD, 2014).
FIGURE 2-1 Agricultural and food R&D spending worldwide, 1980 and 2009. In the two left bars for public and private R&D, there is presently no information available on the breakout for BIC countries. BIC data are only available for public-only R&D. BIC = Brazil, India, and China; PPP = purchasing-power parity; ROW = rest of world.
SOURCE: Pardey et al., 2014.
invested worldwide in both public-sector and private-sector agricultural R&D (Figure 2-1) (Pardey et al., 2014). The U.S. global share dropped to 20.2% by 2009 as total public and private spending worldwide grew to just over $53 billion. The relative trends are similar for agricultural and food R&D performed by just the public sector—the U.S. global share decreased from 16.7% in 1980 to 13.4% in 2009, and the United States is now second to China in public investment in agriculture and food R&D. The big gains were made by Brazil, India, and China (the so-called BIC countries), whose combined global share of publicly performed agriculture and food R&D increased from 16.2% in 1980 to 31.2% in 2009.
A continued reduction in the U.S. global share of publicly performed food and agricultural research is not a foregone conclusion, but the trends are heavily influenced by policy choices made by the United States and other countries. Over the last three decades, the BIC countries opted to sustain high rates of growth in public investment in agriculture and food R&D while the United States slowed its analogous rate of growth (Figure 2-2). The changes in global R&D investment shares are dramatic, and the differences in the growth in public R&D spending between the United States and
FIGURE 2-2 Public and private investments in food and agricultural R&D. Panel (a) shows public and private investment in R&D from 1950 to 2009. Panel (b) shows the real rate of growth in public and private R&D investment by decades.
SOURCE: Dehmer and Pardey, 2014.
the BIC countries are widening. During 1980–2009, real public spending in the BIC countries as a group increased by an average of 4.3% per year compared with 2.04% per year in the United States. Over the last decade, the BIC countries ramped up their rate of spending, increasing by 7.3% per year compared with 1.04% per year in the United States. The President’s Council of Advisors on Science and Technology stated in its report that “the waning public investment in agricultural research in the United States contributes significantly to the risk of losing its international leadership in agriculture” (PCAST, 2012, p. 5), particularly in contrast with the increasing investment by BIC countries. To maintain its global leadership in the agriculture and food sectors and maintain an edge in discovery and innovation, the United States needs to be cognizant of R&D trends in other countries.
U.S. Public and Private Trends
In 2009, an estimated $9.6 billion (2005 prices) was spent on all food and agricultural R&D performed in the United States, a figure that reflects investment by both public and private entities (Figure 2-2a).7 That amount represented 2.9% of total spending on all R&D in the United States. The public sector performed about 40% of U.S. food and agricultural R&D compared with 22.1% of the total for all R&D, indicating a relatively larger public investment in food and agricultural R&D than in other R&D. Almost 32% of total food and agricultural R&D in 2009 was performed by universities and colleges compared with 14.8% of the total for all R&D. Similarly, 11.3% of food and agricultural R&D was performed in federal government research laboratories (such as intramural USDA research) compared with 7.7% of the total for all R&D. The atomistic nature of most farm operations and the difficulties of appropriating the returns to many agricultural innovations (e.g., many new crop varieties are self-replicating, so farmers can save and reuse varietal innovations without paying for them repeatedly) suggest that market failures in farm technologies are more pronounced than in other sectors, and this argues for a relatively greater public presence in agricultural R&D.
Over the last 50 years, private spending has grown faster than public spending (Figure 2-2b), and the private sector now conducts a larger share of the food and agricultural R&D in the United States than the public sector (Figure 2-2a). However, the private sector has a different emphasis on R&D from the public sector, which reflects different incentives and opportunities for returns on investment. For example, in the United States, around 80% of private research is developmental or nearly commercial (see Table 4.3 in NSB, 2012), whereas 80-90% of the public sector’s research is foundational
7If forestry research is included, the corresponding 2009 total is $10.1 billion (2005 prices).
or applied research that provides the intellectual building blocks for developing the innovations that underpin growth in the food and agricultural sectors (USDA-CRIS, 2010). Moreover, food, beverage, and tobacco research conducted by companies—including Kraft, Kellogg, and Pepsico—is the largest category of private food and agricultural research in the United States, accounting for 36% of the 2009 total (Dehmer and Pardey, 2014). In contrast, the public sector accounted for just 23.6% of this research in 2009 in the United States (Dehmer and Pardey, 2014). With 84.5% of the value of 2011 U.S. food sales accruing to post-farm activities (which means that there are prospects of substantial commercial rewards for innovation in this part of the food supply chain) and with market-failure arguments for public engagement in this field being less pronounced, that is to be expected (USDA-ERS, 2013). Agriculture and chemical research (which includes biological research intended to develop new crop varieties and innovations designed to develop new herbicides, pesticides, and veterinary medicines) accounts for the next-largest share of private research, followed by research on new agricultural machinery and equipment (Dehmer and Pardey, 2014).8 These trends are interesting to note and they raise questions about the relationship between public and private R&D investments (whether shrinking public R&D will lead to lower private R&D or the reverse) and whether the private sector will respond to decreasing U.S. public R&D by turning to the BIC countries for foundational research conducted outside the United States.
As noted earlier, the growth in public spending on food and agricultural R&D has slowed over the last several decades, and in fact real spending has trended down since 2002 (to at least 2009, the last year for which data are available). Spending on cooperative extension increased since it was established in 1915 at an average of 6.7% per year; but from 1950 to 1980, inflation-adjusted growth in extension spending slowed to 2.39% per year. During the period 1980–2006, real extension spending shrank by 0.25% per year.
Sources of Funding for Public Research
Public-sector food and agricultural R&D is conducted by scientists in SAES and associated universities and by scientists in federal USDA laboratories. Some U.S. government funding ($78.9 million in 2009) also supports agricultural R&D conducted by the international research centers that
8The Dehmer and Pardey (2014, in preparation) series spanning the period 1950–2009 is an entirely new compilation of U.S. private agriculture and food R&D spending. An earlier beta version of the series was reported by Alston et al. (2010). Fuglie et al. (2011) reported an alternative set of private-sector R&D estimates.
constitute the Consultative Group on International Agricultural Research. Of the $3.6 billion spent by state-affiliated institutions (the SAESs and other cooperating institutions) in 2009, 38.0% came from federal sources, 38.3% from state governments, 8.2% from industry grants and contracts, and 15.5% from income earned from sales, royalties, and various other sources. Research conducted by USDA laboratories ($1.53 billion) was almost entirely funded by the federal government (96%).
Historically, USDA has been the dominant federal government agency channeling funds to the SAESs. In 1975, USDA disbursed almost 74% of the federal funds that flowed to the SAESs (Figure 2-3). By 2009, that share had declined to 50% as funding from other federal agencies increased, including funding from the National Institutes of Health, the Environmental Protection Agency, the Department of Energy, and the National Science Foundation. Notwithstanding the declining share of federal support from USDA, the growth in federal funding from non-USDA agencies has been such that total federal funding has grown as a share of total SAES funding—from 28.6% in 1975 to 39.9% in 2009 (see Figure 2-3). That diversification of funding reflects a significant erosion in the ability of USDA to influence the agriculture and food-system research agenda in SAESs and universities. As the funding from other agencies has grown, the priorities
FIGURE 2-3 Roles of the federal government, including USDA, in funding SAES research, 1975–2009. NIFA = National Institute of Food and Agriculture.
SOURCE: (Pardey et al., 2013b). Reprinted with permission from AGree.
of the research conducted have been increasingly determined by those of other funding agencies.
With a decline in the share of SAES funding from USDA came a decline in the share of SAES funding administered by the National Institute of Food and Agriculture (NIFA; Figure 2-3). In 1975, NIFA funding—or specifically its precursor at that time within USDA (see Chapter 3)—accounted for 18.8% of total SAES funding. By 2009, the NIFA share had shrunk to 15.6% of the SAES funding total.
An additional implication of a steady decline in the USDA share of funding for research carried out by the SAESs and other research institutions is that talented investigators will probably shift from research directly relevant to agriculture (supported by USDA) to research that is less so. That potentially results in a gradual decrease in talent, knowledge, and innovation available to agriculture. With innovative agricultural researchers seeking much of their funding from non-USDA agencies, it becomes likely that USDA is not fully leveraging cutting-edge scientific and technological advances that are relevant to agriculture. As a result, the United States might not be adequately prepared to face future challenges, because the knowledge base needed to address them will have shrunk. Chapter 3 will address the special niche of the USDA Agriculture and Food Research Initiative in addressing the issue of R&D in agriculture and associated disciplines.
The agricultural and food sectors have served this country well, but given the changes in fiscal structures supporting them, it is unlikely that the rate of knowledge improvement and discovery through R&D has kept pace with increasing global competition and domestic needs for ensuring a safe, nutritious, and accessible food supply. The shrinking of public investment in U.S. agricultural R&D will probably slow innovation and slow the growth of the knowledge base necessary to meet evolving challenges presented by increasingly competitive global markets, increasing resource scarcity, growing environmental concerns (such as climate variability, water use, pollution), and the rapidly expanding food needs faced by the United States and thereby jeopardize the United States’ ability to maintain competitiveness in international agricultural and food markets.
Finding 2-1: Research and development investments, targeted specifically toward agriculture and food issues, are critical for sustaining innovation and for creating the knowledge base necessary to meet growing challenges of increasingly competitive global markets, and resource scarcity, growing environmental threats (such as climate variability, water use, pollution), and rapidly expanding food needs.
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