Research Investments and Market Structure in the Food Processing, Agricultural Input, and Biofuel Industries Worldwide
by Keith Fuglie
, Paul Heisey
, John King, Carl E. Pray, Kelly Day-Rubenstein
, David Schimmelpfennig
, Sun Ling Wang
, and Rupa Karmarkar-Deshmukh
Economic Research Report No. (ERR-130) 147 pp, December 2011
What Is the Issue?
Growth in the productivity of the global food and agricultural
system will be largely determined by today's investments in
research and development (R&D). In recent decades, the private
sector has become a major player in developing innovations for food
and agriculture. Factors spurring private companies to invest in
food and agricultural research include the emergence of
biotechnology and other new scientific developments, the
strengthening of intellectual property rights (IPR) over
agricultural innovations, new regulatory requirements, the
expansion of markets for improved agricultural inputs and food
products, and rising consumer demand for more diverse foods. More
recently, rapid growth in the market for biofuel has pushed
companies to expand their R&D investments in this area as
This report quantifies investment trends by for-profit companies
in food manufacturing, biofuel, and agricultural input R&D and
explores how these trends are affected by changes in market demand
and industry structure. In particular, the report examines changes
in the organization and structure of agricultural input industries
(crop seed and biotechnology, crop protection chemicals, synthetic
fertilizers, farm machinery, animal breeding and genetics, animal
health, and animal nutrition) and whether increases in market
concentration in these industries are associated with increases or
decreases in the level and intensity of R&D investments.
For comparative purposes, we present some aggregate statistics
on public-sector research spending for food and agriculture and
ways in which these investments differ or complement R&D in the
private sector. However, we do not delve much into the interactions
between public and private R&D. For a detailed examination of
the evolving role of the public and private sectors in agricultural
R&D in the United States, see Fuglie and Schimmelfpennig
What Did the Study Find?
During 1994-2007 (the latest year for which estimates are
available), annual private-sector food and agricultural R&D
grew from $11.3 billion to $19.7 billion, or 4.3 percent per year
(or, in constant 2006 dollars, from $14.6 billion to $19.2 billion,
or 2.1 percent per year). In highincome countries, private-sector
R&D spending appeared to be roughly equivalent to public sector
spending on food and agricultural R&D, although public R&D
spending continues to be larger if only agricultural-related
R&D is considered.
Growth in R&D investment was uneven across industries. The
most rapid increase in R&D was in crop breeding/biotechnology.
Significant growth in R&D spending also occurred in farm
machinery and food manufacturing. However, real
(inflation-adjusted) R&D spending declined for crop protection
chemicals and animal nutrition.
Other key findings include the following (figures below are in
current or nominal dollars, unadjusted for inflation):
• In 2010, global private-sector investments in R&D related
to agricultural inputs reached $11.03 billion, an increase from
$5.58 billion in 1994.
• In 2007, global private-sector investments in R&D related to
food manufacturing reached $11.48 billion, an increase from $6.02
billion in 1994.
• In 2009, global private-sector investments in R&D related to
biofuel reached $1.47 billion, with most growth in this area
occurring since 2000.
• Generally, the largest four to eight firms in each sector
accounted for about three-fourths of the R&D in that sector,
with larger firms spending more than smaller firms on R&D as a
percentage of product sales (with the exception of small
biotechnology firms). Typically, the large firms are multinational
operations with global R&D and marketing networks.
• In most of the agricultural input industries, market
concentration increased during 1994-2009, with the highest levels
observed in the animal breeding and crop seed sectors and the
largest increase observed in the crop seed sector.
• Rising levels of market concentration were not associated with
larger R&D investment in agricultural input sectors.
• The globalization of food and agricultural R&D may
accelerate the rate of international technology transfer, reducing
productivity differences across nations and regions.
How Was the Study Conducted?
We used a number of approaches to construct estimates of private
R&D spending by sector. For research-intensive agricultural
input industries, we built a database of agriculturally related
research spending firm by firm over time, for all firms in the
sector (including "legacy" firms, or firms that exited the industry
during the period of study) that have or have had significant
R&D expenditures. For large conglomerates, for which
agriculture may be only one business segment, we separated
agriculturally related R&D spending from R&D spending on
nonagricultural business segments. We gathered this information by
canvassing a broad set of material, including company annual
reports and websites, reports by industry associations and
consulting services, and personal interviews with company
representatives. Altogether, we reviewed R&D information on
more than 800 agricultural input companies worldwide. These
firm-level data also enabled us to examine hypotheses regarding the
relationship between industry structure and R&D spending: Do
larger firms spend more (as a percentage of product sales) on
R&D than smaller firms? Has the rising concentration of several
agricultural input industries affected overall levels of R&D
spending by that industry?
For agricultural input industries in which firms do not often
report their research spending, we estimated agricultural R&D
for the industry by taking a percentage of total agricultural input
sales, with the percentages (or research intensities) derived from
observations on R&D spending from a subset of firms and from
previous surveys of the industry. For the food manufacturing
industry, we relied on country-level estimates produced by the
Organisation for Co-operation and Development, which covers
primarily high-income countries. With these sources, we developed a
global time series of R&D expenditures by agricultural input
industries from 1994 to 2010, the food industry from 1990 to 2007,
and for biofuel in 2009. We examined how trends in R&D spending
were associated with changes in market demand and industry
structure and reviewed the evidence on the factors causing
structural changes in agricultural input industries.