agricultural innovation

Agricultural Innovation

Brian Wright and Tiffany ShihUC Berkeley, Agriculture and Resource

EconomicsAccelerating Energy Innovation: Lessons from Multiple

Sectors Sponsored by the National Bureau of Economic Research

Washington, D.C.Oct. 23, 2009

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Agricultural Innovation: A Context

Estimated rates of return to U.S. public investment (1915-1999): 45-60% (Evenson, 2001)

Increases in rates of food supply outpaced population and consumption growth, leading to better nutrition, longer life expectancies, increased labor productivity

Impressive history of achievement through public investments

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• Benefit-cost ratio of U.S. research expenditures:

National: 32:1 Within-state: 21:1 Between-state: 11:1

• But lag time between


Rate of Return on investment in agricultural research is large in the U.S.: 40-60% per annum

(Pardey, personal communication; image from University of Nebraska-Lincoln, Plant and Soil Sciences e-Library: http://plantandsoil.unl.edu/)

investment and return is about 24 years

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Environmental variation shapes research activities

Total developing country public investments overtook total developed country public investments for the first time in the 1990s

Production and consumption of agricultural resources are geographically dispersed, with spillovers

Agricultural R&D Expenditures: Uniquely Diverse

DC Public

DC Private

LDC Public

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Agricultural Research Investments

• Research investments as % of agricultural output value:

Devel’d Countries: 2.64 Brazil: 1.40 China: 0.40 India: 0.33 All LDCs: 0.50(Pardey, personal communication)

• China: recent growth in agricultural biotech spending:

$17M in 1986 to nearly $200M by 2003 (Huang et al, 2002; Huang et al, 2005)

Much higher now

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• U.S. public agricultural research expenditures: 57% on product development, 43% on environment and

other Growth in spending down to 1% from 2% between 1915-

1990

• World Bank agricultural lending: Big reverse: $1.5 B in 2002 average of $4.6 B/yr between 2006-2008

Research investment levels and directions tend to fluctuate inversely with food prices

Brian, is this statistic what Phil Pardey told you for the U.S.? Or for the world?

Brian, is this statistic what Phil Pardey told you for the U.S.? Or for the world?

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• Consultative Group on International Agricultural Research (CGIAR)

Investment levels and directions tend to fluctuate with food prices


Trend to shift research focus away from yield enhancement

Investments dropped between 1994-2002, rose

after prices rose

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Public sector produces basic research that private sector relies upon to do focused applied research

Final users

General and pre-invention

sciences

Innovation products

Technology invention

Public investment

Private investment

(adapted from Huffman and Evenson, 2006)

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Intellectual Property (IP) Outcomes

• Private investment responded to biotech revolution, and IPRs:

Amount comparable to public investment currently CAVEAT:

Investments mostly on inputs and processing Focuses on a few commercially important crops (corn,

soybean, cotton, and canola)

Highly efficient in development and delivery of technology packages (e.g. Monsanto’s Roundup Ready)

Privatizing innovation increases private investment, but does not substitute for public investment

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Importance of Public Investments

“We also have to strengthen our commitment to research, including basic research, which has been badly neglected for decades. That's always been one of the secrets of America's success…

The fact is, though, basic research doesn't always pay off immediately. It may not pay off for years. When it does, the rewards are often broadly shared,

That's why the private sector generally under-invests in basic science. That's why the public sector must invest instead. While the risks may be large, so are the rewards for our economy and our society…”

September 21, 2009

President Obama, speech at Hudson Valley Community College, Troy, New York

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Importance of Public Investments

“That's why the public sector must invest instead.”

President Obama, September 21, 2009

• Key question: -Can the public sector still support the

necessary persistent commitment , in agriculture or in energy?

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History of Sustained U.S. Public Agricultural Support

• Early historical influences Europe, esp. Germany, established role of science in

agriculture Prioritization by important U.S. leaders, Washington,

Franklin, Jefferson, and Ellsworth

• Importance of locally adaptive research and large buildup of research capital stock for innovation Institutional innovations: land grant colleges and local

research stations with long term committed funding source (federal land grants)

Hybrid corn in the U.S.

• Private interests influence public research funding

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Conclusions

Public investment in agricultural research has had extremely high rates of return, in farm income and cheap food:• Future success will require

continued sustained investments

• However, long lag times and high rates of return make this need difficult to for the public to understand

• Geographic dispersion of activities is appropriate for agriculture

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Conclusion

• Leading private firms, motivated by IPRs, are efficient in developing, promoting and disseminating commercial technology packages

• Has this come at the expense of small-firm entry?

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Conclusion

• Need for local adaptive technology motivates global dispersion of research efforts and support

• Upstream research are still dominated by public institutions and nonprofits

• High historic rates of return accrued to public ag research in U.S. via sustained federal-state investment oriented by a clear mission

• Is this still politically possible, in agriculture or energy, or will investment follow the crises?