Published in Probe Volume 2(2): Summer 1992
George W. Norton, Professor
Department of Agricultural Economics
Virginia Polytechnic Institute and State University
Public expenditures on agricultural research in the United States currently exceeds $2.5 billion annually. Although this amount is a small portion of total Federal and State budgets, it is still a great deal of money. Thus, we ought to ask how society benefits from this investment.
Since the 1950's, a substantial body of knowledge has been developed to help answer this question. Several studies have estimated the statistical relationship between agricultural output and various inputs, including agricultural research. The results of these analyses have been used to calculate economic rates of return on research investment. This type of calculation has been completed for agricultural research as a whole and for research on individual commodities.
Rates of Return
The estimated rates of return on research for agriculture as a whole are presented in Table 1. Most of the rates of return are in the 30-60 percent range, several times the return typically obtained from conventional investments in manufacturing. These returns do not mean that all agricultural research is worthwhile. Some projects or programs have very high (several hundred percent) rates of return while others have low or no return. Also, the variation in rates of return shown in Table 1 reflect differences in time periods and model specification.
These rates of return measure the annual percentage rates of "real" returns on the previous public research investments -- "real" meaning that they are adjusted for inflation. The calculations take into account the estimated time pattern of the annual benefits and convert the flow of benefits to an annualized basis. This time pattern arises because research knowledge may take several years to produce, then pay off for a long period of time, and eventually depreciate and require maintenance. A recent analysis found roughly a $5 return, spread over a 15- to 20-year period, for each dollar invested in agricultural research.
These economic returns on investment in research benefit producers and consumers in several tangible ways. First, adoption of new technologies generated by research leads to reduced costs per unit of production and expanded supplies of food and fiber. Expanded supplies put downward pressure on prices, thus benefiting the consumer. This benefit is particularly important for low-income consumers who spend a higher proportion of their budget on food than do high-income consumers.
Second, improvements in agricultural productivity have enabled farmers to remain competitive in world markets and to expand exports. Third, agricultural advances have a multiplier effect on the rest of the economy by generating jobs and incomes in the nonfarm sector. This in turn expands tax revenues, thus offsetting the initial public expenditures on research.
Fourth, agricultural research has led to improvements in food quality, food safety, and nutrition. Researchers have developed more nutritious foods with less waste. Food processing, packaging, and preparation research has led to reduced spoilage and contamination. Fifth, agricultural research has contributed technical and institutional solutions to improve environmental quality. For example, minimum tillage farming systems conserve energy and reduce erosion; integrated pest management research is showing the way to less pesticide-intensive farming.
Education and Productivity
Sixth, the complementary relationship among research, teaching, and extension programs in our universities means that students, farmers, government officials, and agribusiness leaders have received more sophisticated up-to-date training than if our university teachers and extension workers just regurgitated the knowledge they were taught.
Seventh, agricultural research has eased the drudgery and extended the productive worklife of the farmer. Machines, equipment, and chemicals now perform tasks formerly completed in a backbreaking manner. Eighth, agricultural research has generated information that can be used to improve government policies or other institutional arrangements that affect the well-being of producers and consumers.
In conclusion, the United States has made a sizable investment in its agricultural research system. This investment has paid handsome dividends to producers and consumers. Estimated real rates of return of 30-60 percent are not uncommon. And these returns only represent part of the benefits. Food safety and environmental improvement benefits of research have increased in recent years as these factors command more of a central focus in research programs.
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