Abstract—U.S. agricultural
output grew at an average annual rate of 1.76 percent
over 1948-2002. Input use actually declined in aggregate,
so the positive growth in farm sector output was wholly
due to productivity growth.
Introduction
U.S. agricultural output has more than doubled in the last
50 years, growing at an average rate of 1.76 percent
per year (fig. 3.4.1). This rate is a remarkable achievement
considering that labor has been departing the sector
and land use has declined slightly, while capital influx
has been modest. In spite of the growth in materials
like fertilizer, fuel, and machinery, the net contribution
of all inputs was slightly negative, leaving productivity
growth as the sole source of output growth. While the
contribution of other factors like labor, capital, and
production inputs has risen or fallen with macroeconomic
trends, one intangible input--productivity--has grown
inexorably. But what is productivity?
Productivity is not equivalent to output (or production).
Productivity reflects improvements in the ability to transform
inputs into outputs. In the most literal sense, it is a
residual measure of the contribution to output growth after
all other factors have been accounted for. It is the nonphysical
product of innovation, efficiency, management, research,
weather, and luck. And its rate of growth seems to have
slowed in recent years, coincident with a dropoff in public
funding for agricultural research since the 1980s.
What
is productivity growth?
Productivity growth is a
reflection of technological change and efficiency improvements,
e.g., better management or economies of scale, which result
in producing more output from a given level of input. Productivity
growth is difficult to measure. Measuring productivity growth
requires the careful accounting for all outputs and inputs
and especially attempting to measure the improvements and
actual flow of services from inputs, i.e., what is actually used.
Once all inputs, including their technical improvements, are
measured, what is not captured—the residual—is
called productivity growth.
Patterns in Output and Productivity Growth
Output growth derives from growth in the use of inputs (capital, land, labor,
materials) and total factor productivity growth. Input growth has been the main
source of economic growth for the U.S. economy as a whole and for most sectors.
Only in agriculture does productivity growth exceed input growth (table 3.4.1),
over 1948-2002 and in 10 subperiods.
Table 3.4.1--Source of
growth for U.S. farm sector
item
1948- 2002
1948- 1953
1953- 1957
1951- 1960
1960- 1966
1966- 1969
1969- 1973
1973- 1979
1979- 1989
1989- 1999
1999- 2002
Percent
growth per year
Output growth
1.76
1.76
0.89
4.44
1.06
2.26
2.51
2.53
1.0.
2.21
-0.40
Sources of output growth:
Labor
-0.62
-1.16
-1.05
-0.75
-1.10
-1.05
-0.28
-0.72
-0.41
-0.09
-0.44
Capital
0.01
0.69
0.15
0.07
0.11
0.35
0.17
0.33
-0.55
-0.23
-0.03
Land
-0.06
0.02
-0.11
-0.10
-0.05
-0.15
-0.22
0.0
-0.08
0.0
-0.06
Materials
0.64
1.54
1.10
1.50
0.69
0.30
0.64
1.50
-0.64
1.13
-1.26
Total factor productivity
1.79
0.65
0.81
3.73
1.40
2.81
2.221
1.40
2.69
1.41
1.38
Source: ERS-USDA from
information in the data product, "Agricultural
Productivity in the United States".
Labor
The singular importance of the role of productivity
growth in agriculture is all the more remarkable given
labor's
long-term contraction. Over 1948-2002, labor
input declined, on average, 2.4 percent each year,
a rate unmatched by any nonfarm sector. The historic
decline in farm labor—both farmers and farm laborers—occurred
as workers sought higher wages and other income opportunities
in the nonfarm sector. This rate of decline in labor appears
to have slowed since the 1980s (fig. 3.4.2) as average
household incomes in the farm and nonfarm sectors have converged (Hoppe) Farm households, like nonfarm households, now pursue
multiple careers and diversify their earnings. In fact, the income
available to the average farm household can support a
standard of living equal to or above that of the average
nonfarm household, reducing the desire to leave farming.
Capital
Capital input in agriculture exhibits a different pattern
than labor. During 1973-79, U.S. agriculture experienced
rapid growth, fueled by a growth in exports resulting from
increased global liquidity, rising incomes, and production
shortfalls in other parts of the world. U.S. farm exports
surged from an average $4.8 billion in 1950-70 to $9.4
billion in 1972 and $17.7 billion in 1973. Exports continued
to increase through 1981, when they peaked at $43.3 billion.
In addition, domestic forces—including a drop in interest rates and rising inflation—contributed
to an increase in borrowing for the purchase of land and
equipment. For much of the 1970s, real interest rates were
close to zero and at times negative, reducing the cost
of capital. Capital input in agriculture increased 2 percent
per year between 1973 and 1979, adding an average 0.33 percentage
points per year to output growth (table 3.4.1).
However, the economic environment changed in the early
1980s. A change to restrictive monetary policy by the Federal
Reserve pushed interest rates up sharply. The dollar appreciated
on foreign exchange markets, and world export prices fell.
The average real interest cost on variable-rate debt rose
to nearly 16 percent in 1981-83. Real interest rates remained
high thereafter, as the stringency of Federal Reserve policy
was heightened due to large fiscal deficits. This mix of
fiscal stimulus and monetary restraint slowed the growth
in export-dependent sectors of the economy, including
agriculture. The value of U.S. farm exports fell from $43.3
billion in 1981 to $26.2 billion in 1986, as both volume
and prices dropped. Growth in agricultural output slowed
to about 1 percent per year during 1979-89, versus 2.5
percent over 1973-79 (table 3.4.1). Capital's contribution
to output growth was negative during this period, averaging
–0.55 percentage points per year.
Land and Material Inputs
Land's contribution to growth in agricultural output
was negative for all recent time periods but 1948-53, 1973-79,
and 1989-99. Over 1948-2002, the contribution of land to
output growth was –0.06 percentage points per year.
It seems ironic that the contribution of land to output
growth would generally be negative in a land-based industry
like agriculture. The explanation lies in the vast availability
of farmland in the United States. The positive growth in materials
reflects the substitution of those inputs for land. Material
inputs'
contribution averaged 0.64 percent per year over 1948-2002.
Still, this did not offset the negative contributions of
labor and land, making the contribution of all inputs negative.
Parallels can be drawn between the 1973-79 and 1989-99
periods. Both were periods of rapid output growth, fueled
largely by growth in demand for agricultural exports. And
input growth accounted for a disproportionate share of
output growth during both periods. Growth in intermediate
inputs contributed more than 1 percentage point per year
to output growth during 1989-99. The net contribution of
input growth to output growth was 0.8 percentage point
per year during 1989-99, versus 1.02 percentage points
during 1973-79.
Productivity Growth
Since productivity grew 1.79 percent
per year over the period of 1948-2002, farm sector productivity
in 2002 was 263 percent above its 1948 level. As a consequence,
and in the absence of input growth between 1948 and 2002,
productivity growth single-handedly caused farm output
to grow 259 percent above its 1948 level.
Looking at productivity trends over the long term is
appropriate. Productivity is largely the result of long-term
investments in scientific research, so while agricultural
productivity has risen and fallen year to year—typically
driven by year-to-year fluctuation in output due to weather—it
has generally trended upward. However, since 1996, productivity
growth has slowed. Is this a change in trend? A key source
of productivity growth--public investments in research--
has been flat in real terms since the 1980s. (See AREI
Chapter 3.2). Only time will tell how this may affect
future productivity growth.
How
Is Productivity Measured?
The U.S. Department of Agriculture (USDA) has been
monitoring agriculture's productivity performance
for decades. In fact, USDA was the first Federal agency
in 1960 to introduce multifactor productivity measurement
into the Federal statistical program. Today, ERS routinely
publishes total factor productivity (TFP) measures
from production accounts that distinguish multiple
outputs and inputs and adjusts for quality change in
each input category. Its TFP model is based on the
translog transformation frontier. It relates the growth
of multiple outputs to the growth rates of capital,
land, labor, and intermediate inputs, weighted by their
shares in total costs. The changing demographic character
of the agricultural workforce is used to build a quality-adjusted
index of labor input. Similarly, much asset-specific
detail underlies the measure of capital input. The
contribution of feed and seed, chemicals, and energy
are captured in the index of intermediate inputs. An
important innovation is the use of hedonic price indexes
in constructing measures of fertilizer and pesticide
consumption. The result is a series of TFP indexes
spanning 1948 to 2002.
ERS defines the farm sector as it is defined in the
U.S. national income and product accounts. Production
of goods and services that are secondary to agriculture
is assigned to the primary producing industry. This
enables certain secondary activities closely linked
to agriculture for which information on production
and input use cannot be separately observed to be included
in the total factor productive activity of agriculture.
Examples include the provision of machine services,
contract feeding of livestock, recreational activities,
and other activities involving the use of the land
and the
means of agricultural production.
References
Ball, V.E., J.C. Bureau, R. Nehring, and A. Somwaru (1997).
"Agricultural Productivity Revisited," American Journal
of Agricultural
Economics 79.
Ball, V.E., F. Gollop, A. Kelly-Hawke, and G. Swinand (1999). "Patterns
of State Productivity Growth in the U.S. Farm Sector: Linking State
and Aggregate Models," American Journal of Agricultural
Economics 81:164-179.
Jorgenson, D., and F. Gollop (1992). "Productivity Growth
in U.S. Agriculture: A Postwar Perspective," American
Journal of Agricultural Economics 74: 745-50.
Jorgenson, D., F. Gollop, and B. Fraumeni (1987). Productivity
and U.S. Economic Growth. Cambridge, MA: Harvard University
Press.
Kendrick, J., and E. Grossman (1980). Productivity in the United
States, Trends and Cycles. Baltimore, MD: The Johns Hopkins
University Press.
