Julian Alston, University of California, Part 2 – ‘Driving productivity growth through R&D…’

So, er, these are yields … oh, the colours don’t work. Oh well. So the – for maize this is growth rates of crop yields for the world as a whole. And so for maize it was 2.2% per year up until 1990 and then 1.7% per year after that. For wheat 2.95% then 0.5%. Rice 2-2%, then 1.0%. Soy beans – fell again. So, for each of these crops, for the world as a whole productivity growth since 1990 was slower than before. Okay? If you look just at the high income ocuntries, the story is worse – it’s bigger slowdown in every case. If we look at the middle income ocuntries – not so bad. They include China, Brazil and India – the places that are doing a little better. For the low income countries; they had very low productivity growth to begin with and so you’ve actually got some acceleration of productivity growth in some of those places. General story though – in the world as whole, especially in the high income countries a slowdown in crop yield growth. If you look at total output per unit of land or per unit of labour – a similar story. In the world as whole, land productivity growth fell from 2% before 1990 to 1.8% after that. Labour productivity grew faster because labour is getting out of agriculture. You can get it with the numerator or the denominator – but if you take China out of the world and take the whole world excluding China, then we’ve got the growth rate of both land and labour productivity slowing down after 1990. If you take out China and the former Soviet Union you counteract that a little bit because they had the opposite experience. But the general story is of slowdown with the exception of China. Latin America is another exceptional story, particularly Brazil driving things there. Throughout Asia, um … it looks like Asia’s okay but when you take China out it doesn’t look as good. Africa doesn’t look so good. Another way to cut is by income category of countries. And here you can see that it’s the high income countries in particular where there’s been a problem with land productivity growth. Now this a map of the United States, showing before … rather, showing the whole period 1949-2002. The average productivity growth rate was 2.02% per year. This is a very good measure of productivity. It’s measuring the output of all of agriculture and then the input – which we’ve adjusted for the quality of the land, we’ve adjusted for irrigation we’ve adjusted for the educational status of farmers – we’ve done everything we can think of to leave a measure of productivity that’s attributable to innovation. And so, there it is. It was around 2% per year up until 1990. It’s about 1% per year since. Very consistent with what we see in crop yield growth. So, another way to think about productivity is to look at prices; and in fact for weird economists like me, er … people look at the terms of trade of farmers and say, ‘That’s a measure of profitability’ and I say ‘Turn it upside down, it’s a measure of productivity.’ And actually it is formally. And so, we can look at this graph and it says er, and some people think that … they have a short memory and they think farm commodity prices go down all the time. Well they don’t. Even in secular terms they don’t. So this – these are indexes for rice, soy beans, wheat and maize. These are $US prices deflated by the CPI – but they’re measures of the world price We could have deflated by something else. It’s about the same story if we use other more sensible deflators. But … these prices were around a hundred – the index was a hundred in 1924. After a fair bit of movement after the price spike in the 1970s we get around a hundred again. Since then they fell very rapidly – but if you look at that graph and you draw a line through it you can say, well it fell rapidly, especially in the 1970s and the 1980s but after that it wasn’t falling as fast. Before we got to the price spike of the late 2000s it was already flat. It was falttening out. it kicked up at the end but it was already flattening out before then – and that shows up in these numbers in the table. The prices were falling at four or more percent per year through 1990 … er, and then between 1990 and 2005 they were falling at a much slower rate. Since 2000 they’ve been rising in some cases. So this is another indicator for me of a slowdown in productivity The commodity price spikes in 2007 and so on. We already had evidence of a slowdown in the rate of the fall of prices – the rate of productivity growth. It’s really important – these price declines were really important for people’s wellbeing and so it’s really important when we think about the world food equation to know what’s going to happen next – and what that depends on. So we’ve got options. I could be giving this talk in Washington DC – in fact I gave one just like it. And, er … it’s easier there. There are a lot of easier targets. One choice is to do nothing. Business as usual. The first observation of that is it’s a wasted opportunity. All of our evidence says there’s a really high rate of return to investing in agricultural R&D. Doing nothing is just wasting that opportunity. By the way, if we do nothing and waste that opportunity something else will happen. China and India and Brazil and other places are not doing nothing. So, our slower rate of productivity growth compared to theirs will mean that, eventually, we cease to be competititive with them And so there’s a selfish reason as well as a … altruistic reason for being concerned about these things. So the answer, I say … something which we can do. There are lots of things we can’t do much about – we can do something about this. We could reinvigorate investments in agricultural R&D In the United States, the USDA budget under the Farm Bill is around $120billion – and anybody care to guess how much they spend of that on agricultural R&D? … Two. It’s negligible compared to what they spend on crop insurance and farm commodity programmes; and it’s not even noticeable relative to what they spend on food & nutrition programmes. So, a small rebalancing of that budget towards R&D – double it – you wouldn’t notice it in the rest of it. Then within the agriculture budget we could think about priorities for spending that money and whether to spend it on biofuels or the other aspects of the environment or food & nutriition or farm productivity. The other thing we could do is develop policies to encourage the private sector to do more – so I tell the Americans, look, the Australians have got the great model. This is what you should be doing. Set up a levy funding arrangement – put in a matching grant because we’ve got levy funding arrangements in the United States and they don’t generate any money and they don’t spend the money on research. You need the matching support from the Federal Government or it doesn’t work. And so it’s very interesting to me in a place like, where we have this world’s ideal model and people are saying, ‘Gee, let’s change that.’ I’m not sure that’s a good idea. The other thing we could do is strengthen intellectual property rights to encourage the private sector; and from a farmer point of view that has a different implications. If we use end point royalties to fund crop improvement research then somebody who owns those varieties is getting the benefits instead of the farmers – and so there’s a really different implication in the lnog run about the returns. Who gets those turns as well. So we should pay attention to that. That’s it for me … These sources are all available if you want to see more about these things and if anybody wants to chase me up I’m happy to interact on them if anybody wants my email. Thank you.

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