Source: ECONOMIC RESEARCH SERVICE, USDA, 5/29/18


Highlights:
• Public investment in agricultural research and development (R&D) has been a major driver of long-term agricultural growth in high-income countries, such as the United States, Australia, and France.
• Public spending on agricultural R&D by high-income countries grew significantly during the latter part of the 20th century, but this trend has recently reversed; agricultural R&D investment by this group of countries is now falling in real terms.
• In response to new pressures, some countries have reformed their public agricultural research systems to develop new sources of funding for R&D, accommodate more private-led innovation, and focus more spending on social objectives other than raising productivity, such as environmental protection and food safety.

Investment in research and development (R&D) is a primary driver of productivity growth in agriculture. In high-income countries—such as the United States, Australia, and France—increases in productivity typically account for nearly all growth in agricultural output. Productivity growth may also reduce the amounts of land, labor, capital, or other inputs used in production. Thus, trends in input use generally do not explain trends in agricultural output.

In high-income countries, governments have tended to invest a relatively high proportion of their total public R&D spending in agriculture. One reason is that technological innovations, such as new seeds, are often difficult and expensive to develop—but then comparatively cheap to distribute and copy. This makes it difficult for the innovator to capture all the benefits from the research. A second reason is that farms are generally too small to conduct their own research. Even today’s large farms are mostly small businesses. Further, agricultural growing conditions are highly diverse, so agricultural technologies must adapt to different local needs. Nonetheless, as agricultural Gross Domestic Product (GDP) has shrunk to a small share of national economic output in high-income countries, the proportion of public agricultural R&D in total public spending has followed suit.

Until recently, public spending on agricultural R&D in high-income countries still managed to grow at least as fast, or faster, than agricultural GDP. But this trend reversed in many high-income countries following the global financial crisis of 2008-09. Between 2009 and 2013, after adjusting for inflation, total agricultural R&D spending by these countries fell by almost 6 percent—the first sustained drop in over 50 years.

If this decline in R&D investment continues, the growth of agricultural productivity and output may eventually slow. In response to funding constraints, changing agricultural structure, and other challenges, some countries have introduced reforms to diversify sources of financial support for agricultural research, strengthen incentives for private research, and direct more public research toward broader social objectives.

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