Both public and private spending on agricultural research pay off in similar large increases in farm productivity, according to two University of Wisconsin-Madison researchers. But the payback from private spending accumulates quickly and then fades, while public research investments take longer to yield their full return.
Jean-Paul Chavas and Tom Cox, economists at the UW-Madison College of Agricultural and Life Sciences, described this tortoise-and hare pattern of returns from public and private research spending in series of scientific papers.
“Over the last few decades, spending by agricultural companies for research has been rising while public spending has increased little,” Cox says. Private spending for agricultural research has exceeded public spending since 1982 and by 1996 the difference was nearly $1 billion.
“Under these conditions, farm productivity might actually accelerate in the short term,” Cox says. “But over the longer term, say 15 to 25 years from now, the current relative decline in public research may lead to slower productivity growth.”
Ag research helped make the U.S. food system the envy of the world and keeps the country”s agricultural sector competitive in international markets. Agricultural exports remain one of the few bright spots in the nation”s gloomy balance-of-trade picture. Yet the recent Federal budget contains what many agricultural experts characterized as another disappointing amount for research at the USDA and nation”s land-grant universities.
Chavas and Cox have been studying the economic impact of research funding on agriculture for nearly a decade. The American Agricultural Economics Association honored one of their many papers in this area as an outstanding journal article.
The two economists found that during a recent 30-year period, public agricultural research gave an average annual rate of return just under 30 percent. Return on private research spending was between 20 and 50 percent. Those results are in line with many earlier studies of agricultural research and far exceed the average return from the Dow Jones Industrial Average over the same period.
“Private research spending has a strong effect that peaks between 5 and 10 years, but has less long-term impact,” says Chavas. “Public spending for research has a small short-term impact on productivity, but a major effect between 15 and 25 years.”
“That lag between public investment and return in increased productivity is longer than previously thought,” says Cox.
The difference in the peak impact of public and private spending probably reflects the nature of research in the two sectors, according to the economists. Companies spend most of their research budgets on applied projects likely to produce marketable products in the near future. Research on food products and agricultural chemicals make up about two thirds of their research budgets.
State and federal government spending for agricultural research — most at the country”s land-grant universities — supports a mix that includes a large amount of basic research as well as applied research on resource conservation, environmental protection, food safety and nutrition. These research areas often fail to attract the interest of agricultural companies because the research is expensive and the economic returns are less certain.
The UW-Madison study was based on an innovative model the economists developed to analyze how research funding affects technical change. They applied it to farm productivity over 50 years. The research was supported with funds from the USDA to the UW-Madison College of Agricultural and Life Sciences.