Agricultural Innovation

1. Agricultural Innovation Brian Wright and Tiffany Shih UC Berkeley, Agriculture and Resource Economics Accelerating Energy Innovation: Lessons from Multiple Sectors Sponsored by the National Bureau of Economic Research Washington, D.C. Oct. 23, 2009

2. Agricultural Innovation: A Context Impressive history of achievement through public investments • Estimated rates of return to U.S. public investment (1915-1999): 45-60% (Evenson, 2001) • Increases in rates of food supply outpaced population and consumption growth, leading to better nutrition, longer life expectancies, increased labor productivity

3. Agricultural Innovation: A Context Rate of Return on investment in agricultural research is large in the U.S.: 40-60% per annum • Benefit-cost ratio of U.S. research expenditures: • National: 32:1 • Within-state: 21:1 • Between-state: 11:1 • But lag time between investment and return is about 24 years (Pardey, personal communication; image fromUniversity of Nebraska-Lincoln, Plant and Soil Sciences e-Library: http://plantandsoil.unl.edu/)

4. Agricultural Innovation: A Context Production and consumption of agricultural resources are geographically dispersed, with spillovers • Environmental variation shapes research activities • Total developing country public investments overtook total developed country public investments for the first time in the 1990s

5. Agricultural R&D Expenditures: Uniquely Diverse

6. Agricultural Research Investments • Research investments as % of agricultural output value: • Devel’d Countries: 2.64 • Brazil: 1.40 • China: 0.40 • India: 0.33 • All LDCs: 0.50 (Pardey, personal communication) • China: recent growth in agricultural biotech spending: • $17M in 1986 to nearly $200M by 2003 (Huang et al, 2002; Huang et al, 2005) • Much higher now

7. Agricultural Research Investments Research investment levels and directions tend to fluctuate inversely with food prices • U.S. public agricultural research expenditures: • 57% on product development, 43% on environment and other • Growth in spending down to 1% from 2% between 1915-1990 • World Bank agricultural lending: • Big reverse: • $1.5 B in 2002 • average of $4.6 B/yr between 2006-2008 Brian, is this statistic what Phil Pardey told you for the U.S.? Or for the world?

8. Agricultural Research Investments Investment levels and directions tend to fluctuate with food prices • Consultative Group on International Agricultural Research (CGIAR) • Trend to shift research focus away from yield enhancement • Investments dropped between 1994- 2002, rose after prices rose

9. Public investment General and pre-invention sciences Final users Technology invention Innovation products Private investment Agricultural Research Investments Public sector produces basic research that private sector relies upon to do focused applied research (adapted from Huffman and Evenson, 2006)

10. Intellectual Property (IP) Outcomes Privatizing innovation increases private investment, but does not substitute for public investment • Private investment responded to biotech revolution, and IPRs: • Amount comparable to public investment currently • CAVEAT: • Investments mostly on inputs and processing • Focuses on a few commercially important crops (corn, soybean, cotton, and canola) • Highly efficient in development and delivery of technology packages (e.g. Monsanto’s Roundup Ready)

11. Importance of Public Investments President Obama, speech at Hudson Valley Community College, Troy, New York “We also have to strengthen our commitment to research, including basic research, which has been badly neglected for decades. That's always been one of the secrets of America's success… The fact is, though, basic research doesn't always pay off immediately. It may not pay off for years. When it does, the rewards are often broadly shared, That's why the private sector generally under-invests in basic science. That's why the public sector must invest instead. While the risks may be large, so are the rewards for our economy and our society…” September 21, 2009

12. Importance of Public Investments “That's why the public sector must invest instead.” President Obama, September 21, 2009 • Key question: • -Can the public sector still support the necessary persistent commitment , in agriculture or in energy?

13. History of Sustained U.S. Public Agricultural Support • Early historical influences • Europe, esp. Germany, established role of science in agriculture • Prioritization by important U.S. leaders, Washington, Franklin, Jefferson, and Ellsworth • Importance of locally adaptive research and large buildup of research capital stock for innovation • Institutional innovations: land grant colleges and local research stations with long term committed funding source (federal land grants) • Hybrid corn in the U.S. • Private interests influence public research funding

14. Conclusions Public investment in agricultural research has had extremely high rates of return, in farm income and cheap food: • Future success will require continued sustained investments • However, long lag times and high rates of return make this need difficult to for the public to understand • Geographic dispersion of activities is appropriate for agriculture

15. Conclusion • Leading private firms, motivated by IPRs, are efficient in developing, promoting and disseminating commercial technology packages • Has this come at the expense of small-firm entry?

16. Conclusion • Need for local adaptive technology motivates global dispersion of research efforts and support • Upstream research are still dominated by public institutions and nonprofits • High historic rates of return accrued to public ag research in U.S. via sustainedfederal-state investment oriented by a clear mission • Is this still politically possible, in agriculture or energy, or will investment follow the crises?