Economic Tidbits

Agricultural Output Growth and R&D

“It is widely agreed that increased productivity is the main contributor to economic growth in U.S. agriculture.” This quote is from a summary of findings on output in U.S. agriculture by the USDA Economic Research Service (ERS). According to the ERS, the level of farm output in 2019 was 2.7 times more than 1948, growing at an annual average rate of 1.42 percent. Growth in output comes from two sources: 1) using more inputs (i.e., planting more acres); or 2) productivity growth, achieving greater output from the inputs used (i.e., greater yield per acre). The ERS attributes nearly all the farm output growth to productivity growth which averaged 1.36 percent since 1948, or 96 percent of total average output growth. In other words, agriculture is producing more output each year without increasing inputs.

However, output growth has slowed since the turn of the century. Growth was consistently above 2 percent between 1966-1981 but averaged just 0.77 percent between 2000-2007 and 0.61 percent in 2007-2019. Why has output growth slowed? A paper by Philip Pardey and Julian Alston, agricultural economists at the University of Minnesota and University of California-Davis respectively, argue changes in the mix of funding for agricultural research and development (R&D) and a reduction in public funding is largely responsible.

Figure 2 illustrates trends in agricultural R&D funding since 1970. Public funding for R&D, two-thirds of which comes from the federal government, has declined from nearly $7.64 billion in 2002 (2019 dollars) to $5.16 billion in 2019. Public funding for R&D contributes to the “knowledge stock” upon which agriculture innovation is based. Pardey and Alston write this knowledge stock has grown in recent decades, but at a slower pace. As a result, agricultural output growth has slowed.

Figure 2. Funding of Agricultural Research & Development in the U.S.

Source: USDA Economic Research Service

While public spending for agricultural R&D has declined in the U.S., China, India, and Brazil have increased their R&D spending (Figure 3). Pardey and Alston note that the U.S. accounted for 20 percent of global public investment in agricultural R&D in 1960. In 2015, the U.S. share was 8.9 percent, second to China at 14.5 percent. Collectively, China, India, and Brazil spend $3.16 on public agricultural R&D for every $1.00 spent by the U.S.

U.S. agriculture output growth is keyed by productivity growth. Given the constraints being placed on agriculture to use less land, chemicals, water, and other inputs, continued productivity growth is a must. It appears this growth will only happen with a renewed public investment in agricultural R&D.  

Figure 3. Public Spending on Agricultural Research & Development

Source: USDA Economic Research Service

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