Productivity Growth Drives Expanded Agricultural
Production
Kathleen Kassel
James M. MacDonald
Sun Ling Wang
U.S. agriculture relies almost
entirely on productivity growth, primarily from
innovation and changes in technology, to raise
output. Total production nearly tripled between
1948 and 2004, while land in agriculture fell by
one-quarter and labor declined by three-quarters.
Because of high productivity growth, agricultural
commodity prices rose at less than half the rate
of economy-wide prices over those 56 years.
What Is Productivity?
Simple measures of productivity growth, such as
increases in output per acre (yields) or output
per worker (labor productivity) have been used
for many years. These are called single-factor
measures because they relate changes in output
to changes in a single input, such as land or labor.
Single factor measures, while useful, take no account
of the usage of other inputs. Land yields could
be raised, for example, by adding more capital
or chemicals. But that would not provide true productivity
improvements if the value of the added inputs exceeded
that of the land that they replaced.
ERS’s productivity indexes
allow researchers to identify the separate roles
of changes in input use and productivity-improving
developments in technology in driving growth in
U.S. agricultural output. Increased total factor
productivity (TFP) is the difference between the
growth in agricultural output and growth in inputs.
ERS publishes TFP measures for the U.S. farm sector
for 1948 to 2004 and for individual States from
1960 to 2004.
Sources of growth in the
U.S. farm sector
(average annual growth rates
in percent)
|
|
1948- 2004 |
1948- 53 |
1953- 57 |
1957- 60 |
1960- 66 |
1966- 69 |
1969- 73 |
1973- 79 |
1979- 89 |
1989- 99 |
1999- 2004 |
Labor |
-0.56 |
-0.86 |
-1.14 |
-0.89 |
-0.86 |
-0.65 |
-0.42 |
-0.22 |
-0.35 |
-0.24 |
-0.78 |
Capital (inc. land) |
-0.08 |
0.61 |
0.01 |
-0.06 |
0.06 |
0.14 |
-0.12 |
0.39 |
-0.67 |
-0.28 |
-0.11 |
Materials |
0.61 |
1.56 |
1.16 |
1.45 |
0.74 |
1.23 |
0.76 |
1.01 |
-0.66 |
1.24 |
-1.15 |
Total factor productivity |
1.77 |
0.45 |
1.00 |
3.80 |
1.11 |
1.56 |
2.24 |
1.28 |
2.53 |
1.44 |
2.79 |
Total output growth |
1.74 |
1.76 |
1.03 |
4.31 |
1.04 |
2.28 |
2.46 |
2.46 |
0.86 |
2.17 |
0.75 |
The sub-periods are measured
from cyclical peak to peak.
Source: USDA, Economic Research Service. |
ERS Estimates Show Less Land, Labor, but Greater
Productivity
The TFP indexes reveal the dramatic contraction
of labor in the farm sector. Agricultural land,
a component of capital, also fell steadily, except
for a brief cessation in the 1970s, and by 2004
amounted to less than three-quarters of its 1948
value. In contrast, the sector’s use of equipment
and of material inputs—energy, fertilizers,
pesticides, and purchased services—increased
considerably until the early 1980s. After that,
materials inputs fluctuated but showed no strong
growth, and equipment inputs declined.
Between 1948 and 1979, the sector substituted expanded
usage of equipment and agricultural chemicals for
declining land and labor inputs. As a result, materials
accounted for a significant share of agricultural
output growth, even though growth in total factor
productivity was also important. However, output
continued to grow after 1979, while capital inputs
declined and material inputs (including chemicals)
grew very little, compared with levels in 1979.
Consequently, growth in TFP accounted for all of
the post-1979 expansion of output.
There can be little doubt that productivity growth
has been the engine of economic growth in post
World War II agriculture. TFP growth sparked most
of the gains in production between 1948 and 1979,
with added capital and materials accounting for
the remainder. After 1979, when inputs in total
declined, TFP drove all of the substantial increase
in aggregate agricultural production.
While the trend rate of TFP growth is large, the
measures also show sharp year-to-year deviations
from that trend, and TFP can even decline in some
years as a result of weather and economic events.
Measured TFP growth fell in 1974 and 1978 when
energy prices spiked, and sharp downturns occurred
during drought years in 1983, 1988, and 1995. Poor
weather hindered production and left TFP flat between
2000 and 2002. But the return of favorable weather
in 2003 and 2004 led to sharp increases in output
and productivity, with TFP growing by 4.4 percent
in 2003 and 6.0 percent in 2004.
Longrun TFP growth is driven by the development
and diffusion of innovations in plant and animal
breeding, capital and materials, production practices,
and agricultural organization. Economic researchers
have found a strong link between investments in
research and innovation and agricultural productivity
growth.
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