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Ag Productivity Drives Output Growth
Eldon Ball
Ron Nichols, USDA
Increased use of inputs (such as capital, land, labor, and materials)
has typically been the dominant source of economic growth for the
U.S. economy as a whole and for most of its producing sectors. Agriculture
is one of the few exceptions. Agricultural output in 2002 was 2.6
times as high as it was in 1948, but input use actually declined
over the past half century. Increased productivity accounts for
the difference. In recent years, however, productivity growth appears
to have slowed, raising questions about future trends.
The singularly important role of productivity growth in agriculture
is made all the more remarkable by the dramatic contraction in labor
input in the sector since the end of World War II. Capital input
increased initially but declined after 1981 as interest rates rose
(raising the cost of capital). Land used in agriculture also declined
over the period. Materials input, by contrast, increased over 1948-2002.
But this positive contribution was not sufficient to outweigh the
declines in land, labor, and capital inputs. The net contribution
of all four inputs to growth in agricultural output was slightly
negative, leaving output growth over the 1948-2002 period entirely
attributable to productivity growth.
Increased use of agricultural inputs did contribute to output growth
in some periods. Increases in materials fueled rapid output growth
in the 1990s, and increases in both materials and capital boosted
output growth in the 1970s. Growth in capital and materials inputs
reduced the share of output growth derived from increased productivity
during these periods. In spite of these anomalies, productivity
growth was truly extraordinary over 1948-2002, averaging 1.8 percent
per year. (By contrast, growth in private nonfarm business productivity
averaged 1.2 percent per year over the same period.)
While agricultural productivity has bounced up and down from year
to year, typically driven by weather, it has generally trended upward
over time. But productivity growth appears to have slowed since
the mid-1990s. Does this reflect a change in trend? Productivity
growth can arise from improvements in efficiency and technology
as well as changes in the scale of production. A key source of productivity
growth has historically been public investments in research. But
those investments have been flat in real terms since the 1980s,
raising questions about prospects for continued agricultural productivity
growth in the future.
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