Federal and state investments in agricultural research have consistently generated very high social rates of return. Surveys of the hundreds of studies quantifying the returns from agricultural research suggest rates of return in the range of 40–60 percent per year. Our recent work reconfirms that US public investment in agricultural research and development (R&D) has paid off handsomely, with benefit-cost ratios of 20:1 and higher. Nevertheless, for many reasons funding for research targeted at agricultural productivity has stagnated since the early 1980s.

This is an excerpt from a longer piece (PDF) written with Julian M. Alston that appears in American Boondoggle: Fixing the 2012 Farm Bill, a publication of the American Enterprise Institute.

Although public investments in agricultural research have long-lasting economic growth consequences, these effects took considerable time to appear because of the nature of the research. For example, developing new crop varieties typically takes ten years or more.

However, while US agricultural productivity growth was rapid between 1949 and 1990, averaging about 2 percent per year, since the early 1990s growth has slowed to a crawl. American agricultural productivity growth has averaged less than 1.2 percent per year between 1990 and 2007. The link between the slowdown in public funding and the slowdown in agricultural productivity growth is clear.

Failing to revitalize federal funding for agricultural productivity–oriented research will have adverse effects on all US households, especially the poorest ones. Effective investments in agricultural R&D lead to innovations on farms that in turn enable reduced costs of production for American farmers, allowing a more abundant supply of farm commodities to be produced at a lower cost and sold at a lower price. The poorest households particularly benefit from lower food prices because they spend the largest shares of their income on food.

At a time when food prices are soaring, it is especially misguided to continue to undermine agricultural productivity growth by limiting federal investments in agricultural research in general -- and productivity-oriented research in particular (in favor of agricultural research dealing with environment, nutrition, health, and a host of other issues). To tackle the growing hunger and food-security problems confronting the United States and the world, what is sorely needed is an increase in federal and other public funds focused squarely on research that will improve agricultural productivity.

Building on the pioneering study by Zvi Griliches, economists have compiled compelling evidence about the key role of agricultural research in increasing agricultural productivity. Over the past century and more, R&D has contributed to a transformation of US agriculture. R&D has fueled productivity growth, enabling US farmers to do more with less and thus helping them remain competitive in increasingly integrated global commodity markets.

The resulting growth in US production of global food and feed staples, such as corn, wheat and soybeans, has also played a significant role in growing food supplies worldwide. In aggregate terms, US agricultural output in 2007 was more than five times greater than output in 1910. The 1.74 percent annual increase in output over 1910–2007 has achieved with only a 0.15 percent annual increase in the total quantity of inputs.

Notwithstanding these considerable achievements over the past century, US agricultural R&D is at a crossroads. The close of the twentieth century marked changes in policy contexts, as well as fundamental shifts in the scientific basis for US agricultural R&D—shifts that will enable entirely new areas of agricultural innovation spurred by developments in informatics, genetics and genomics, and remote sensing—and shifting patterns of research investments and emphasis in the rest of the world. Even though rates of return to agricultural research are demonstrably very high, we have seen a slowdown in spending growth in the United States and a diversion of funds away from R&D targeted at agricultural productivity. Together these trends spell a slowdown in US farm productivity growth at a time when the market has begun to signal the beginning of the end of more than a half-century of global agricultural abundance. It is a crucial time to rethink national agricultural R&D and innovation policies and reposition the US agricultural research and innovation system to address the changing scientific and market realities in the century ahead.

More: Read the full article (PDF)