By Alejandro Plastina and Terry Townsend
In May 2020, the US Department of Agriculture reported that China, followed by the European Union (EU), the United States, India, and Brazil spent the most public funds on agricultural research and development (R&D) (Fuglie and Nelson 2022). US public expenditures on agricultural R&D were about one-third lower in real terms in 2019 than at their peak in 2002 when spending, in 2019 dollars, was $7.64 billion (Fuglie and Nelson 2022). In contrast to the decline in US public expenditures since 2002, China’s public expenditures on agricultural R&D (deflated by national GDP indexes) rose by a factor of approximately five in the two decades since 2000. EU expenditures rose by about one-third, India’s approximately doubled, and Brazil’s rose by about half. The USDA report carries an alarmist tone, suggesting that the reduction in US public spending on agricultural R&D will lead to a reduction in competitiveness in agricultural production and lower social welfare in the long term.
Public R&D vs. value of ag production
Organization for Economic Cooperation and Development (OECD) data demonstrate the relative size of public sector expenditures on agricultural research and development (OECD 2022). Between 2000–2002, annual average spending on agricultural knowledge and innovation systems rose about $1 billion (in nominal dollars) per country in the United States,1 India, and Brazil. In contrast, China’s public sector expenditures on agricultural R&D leapt by a factor of approximately five, growing from around $1.3 billion per year to $6.6 billion. In 2019–2021, China’s annual average public sector expenditures on agricultural R&D were larger than in the United States, India, and Brazil combined (figure 1).
Source: OECD (2022).
China now has the largest agricultural system in the world by value of production. As of 2019–2021, China’s value of production at the farm gate was about $1.6 trillion, compared with $400 billion in the United States and India and about $200 billion in Brazil (figure 2). The structure of China’s farm economy is different from the structures in the other countries because China does not have an abundance of arable land. Except for the far-West region Xinjiang, farmers in China operate relatively small farms producing high-value products such as meat and vegetables. In contrast, the United States and Brazil have larger arable areas and much smaller populations and can afford to produce huge swaths of row crops. India has a population as large as China but has more arable land and can afford to produce lower value products.
Source: OECD (2022).
As a share of the value of agricultural production at the farm gate, Brazil’s public sector expenditures on agricultural R&D were the largest in 2019–2021 at 0.9%, compared with 0.7% in the United States, 0.4% in China, and 0.3% in India (figure 3). Public sector expenditures on agricultural R&D declined as a percentage of the value of agricultural production in all countries between 2000–2002 and 2019–2021, mainly because the value of production rose.
Source: OECD (2022).
The role of private R&D
Private sector spending may offset the United States’ lower public spending on agricultural R&D (Fuglie and Nelson 2022). Between 1970 and 2008, the public sector funded about half of the agricultural R&D directly used by US agriculture. However, by 2013, the publicly funded share fell to 40%–45% because real (in?ation-adjusted) public agricultural R&D fell by about 20%, while real private R&D spending increased around 50%. Furthermore, if we exclude private sector expenditures on R&D for food manufacturing (figure 4), the average share of private agriculture input industries R&D increased from 38% between 1970 and 2010 to 55% between 2011 and 2014.
Source: Fuglie and Nelson (2022).
When we consider private sector spending, the United States is probably still the world leader in funding for agricultural R&D.
Beginning in the 1800’s, the federal government funded most agricultural research in the United States because private sector firms did not have the means and because agricultural research generates significant externalities with significant public benefit. Over time, specialized ?rms in the farm machinery, agricultural chemical, crop seed, and other agricultural input industries grew large enough to make considerable investments in R&D. Between 1970 and 2013, private sector expenditures on agricultural R&D in the United States rose by a factor of three to about $6 billion, while public spending on agricultural R&D in the United States grew very little.
As a result, by 2013, private sector expenditures on agricultural R&D (not counting food manufacturing R&D spending) accounted for nearly 60% of total agricultural R&D expenditures. Data on private sector expenditures on agricultural R&D in the United States are not available for recent years, but the upward trend apparent between 2008 and 2013 has probably continued. By 2020, it is likely that US private sector agricultural R&D spending was between two and three times that of the public sector, meaning that total agricultural R&D spending in the United States was between $15 billion and $20 billion.
In contrast, private sector expenditures on agricultural research and development in China are, almost by definition, zero, and private sector expenditures on agricultural R&D in the EU, India, and Brazil are, at best, modest. Accordingly, total US expenditures on R&D related to agriculture are still the largest in the world, albeit by a shrinking margin as public expenditures in China, the EU, India, and Brazil rise.
There is a distinction between public and private agricultural R&D expenditures, but such expenditures tend to be complementary, rather than substitutes. Therefore, the fall in US public sector agricultural R&D spending and rise in private spending does not necessarily presage a decline in the growth rate of agricultural productivity.
Since WWII, improvements in genetics, chemicals, fertilizers, agricultural machinery, and farm management techniques have transformed US agriculture. As agricultural productivity has increased, public sector research has tended to focus on environmental impacts, animal welfare, farm worker welfare, farm structure (i.e., farm size, organization, and management), and other issues of broad public interest. Meanwhile, privately funded R&D has tended to focus on the development of marketable inputs and services eligible for patent protection.
Recent research suggests that over the last seven decades it has taken about 20 years for usable technologies to reflect advances in basic agricultural science (Clancy 2020). Given that agricultural R&D expenditures by the US private sector began exceeding public expenditures only about a decade ago, it may be another decade before the implications of reduced public sector spending become apparent.
Total Factor Productivity
Nevertheless, USDA data on total factor productivity (TFP)2 suggest that the decline in US public sector spending on agricultural R&D may be affecting productivity growth. An index of agricultural TFP (2015 = 100) peaked in the United States at 106 in 2009 (figure 5). As of 2019, the US TFP index was 100, meaning that input use efficiency per unit of output (or output production efficiency per unit of input) in the United States actually declined by about 6% during the decade ending in 2019.
Notes: This graph does not track relative TFP across countries, only TPF for each separate country. For each country, 2015=100.
Source: Fuglie (2015) and Fuglie, Jelliffe, and Morgan (2022).
In contrast, China, India, and Brazil’s TFP indexes increased between 2009 and 2019, meaning that the agricultural industries of those countries became more input use efficient (or output production efficient).
These indexes of TFP cannot be compared from one country to another. Therefore, we cannot say that as of 2019, India was the most efficient agricultural producer among the countries shown. However, we can say that productivity grew faster in India than in China, the United States, and Brazil during the past decade, rising from an index value of 81 in 2009 to 115 in 2019. Brazil’s TFP index (2015 = 100) grew from 85 in 2009 to 107 in 2019, and China’s rose from 89 to 105 over those same years.
Curiously, productivity growth among the countries shown was the greatest in India between 2009 and 2019. Spending on agricultural knowledge and innovation systems during 2000–2002 and 2019–2021 was lower in India than in China, the United States, and Brazil, both in absolute dollars and as a percentage of the value of agricultural production. India’s TFP index probably rose faster than those of Brazil, China, and the United States during the last decade because India was starting from a smaller base. Nevertheless, India’s TFP growth between 2009 and 2019 is still a significant achievement.
The decline in the US TFP index between 2009 and 2019 might be a result of reduced public sector expenditures on agricultural R&D after 2002, as is implied in Fuglie and Nelson (2022). With public sector spending on agricultural R&D declining, enhancements to productivity in the agricultural sector of the US economy are increasingly coming from private sector investments, which may not be sufficient to maintain growth in US agricultural input use efficiency.
However, the reduction in productivity could also reflect that a rising proportion of US public sector spending on agricultural R&D is oriented toward welfare and environmental issues, rather than traditional productivity-enhancing topics like soil science and breeding. Therefore, the decline in US agricultural input use efficiency after 2009 could reflect not just a decline in public sector R&D spending but also a shift in spending to topics that, while important, have little impact on traditional measures of productivity.
The reduction in the US TFP index could also derive from factors unrelated to agricultural R&D spending. Reduced productivity could reflect reduced investments in agricultural infrastructure in response to better opportunities for the use of capital in other segments of the US economy such as cell phones, electric cars, or space tourism.
Regardless of what caused the decline in US TFP after 2009, it is self-evident that more investment on agricultural R&D would result in more input use efficiency, other things equal. Therefore, while the reduction in US public sector spending on agricultural R&D since 2002 may not in-and-of itself be a cause of a decline in agricultural productivity, it nevertheless is a subject that warrants more study.
Conclusions
1US public sector spending on agricultural research and development has been declining since the early 2000’s. However, US private sector spending on agricultural R&D has been climbing, and total US agricultural R&D spending (public plus private) is probably still larger than in other countries.
China’s public sector spending on agricultural R&D during 2019–2021 was roughly double the level of US public sector spending and four to six times that of India or Brazil. As measured by TFP indexes, US agricultural productivity declined between 2009 and 2019; however, India, Brazil, and China’s TFPs rose. Accordingly, the United States’ advantage in agricultural productivity is less now than a decade ago.
2It is not clear what caused the decline in US TFP between 2009 and 2019. Most likely, a multitude of factors including a reduction in public expenditures on agricultural R&D and a shift in public sector spending away from topics having a bearing on input use efficiency toward welfare and environmental issues caused the decline.
Footnotes:
1According to the OECD, investments in agricultural knowledge and innovation systems (i.e., R&D) include budgetary expenditure financing: (1) R&D activities related to agriculture, and associated data dissemination, irrespective of the institution (private or public, ministry, university, research center or producer groups) where they take place, the nature of research (scientific, institutional, etc.), or its purpose; as well as (2) agricultural vocational schools and agricultural programs in high-level education, training and advice to farmers that is generic (e.g., accounting rules, pesticide application), not specific to individual situations, and data collection and information dissemination networks related to agricultural production and marketing.
2Total factor productivity—usually measured as the ratio of aggregate output to aggregate inputs—is a measure of productive efficiency.
References
Clancy, M. 2020. "How Long Does It Take to go from Science to Technology?" New Things Under the Sun, November 24, 2020. Available at: https://mattsclancy.substack.com/p/how-long-does-it-take-to-go-from#details.
Fuglie, K.O. 2015. "Accounting for Growth in Global Agriculture," Bio-based and Applied Economics 4(3): 221-54.
Fuglie, K., J. Jelliffe, and S. Morgan. 2022. "International Agricultural Productivity." US Department of Agriculture Economic Research Service. Available at: https://www.ers.usda.gov/data-products/international-agricultural-productivity/.
Fuglie, K., and K.P. Nelson. 2022. "Agricultural and Food Research and Development Expenditures in the United States." US Department of Agriculture Economic Research Service. Available at: https://www.ers.usda.gov/data-products/agricultural-and-food-research-and-development-expenditures-in-the-united-states/.
Organization for Economic Cooperation and Development (OECD). 2022. "Agricultural Policy Monitoring and Evaluation 2022: Reforming Agricultural Policies for Climate Change Mitigation." Available at: https://doi.org/10.1787/7f4542bf-en.
Suggested citation:
Plastina, A. and T. Townsend. 2023. "World Spending on Agricultural Research and Development." Agricultural Policy Review, Winter 2023. Center for Agricultural and Rural Development, Iowa State University. Available at www.card.iastate.edu/ag_policy_review/article/?a=152.