Food Prices and Agricultural Research

In my post yesterday, I listed some of the policy options available to curb rising food prices. Third among those options was to “encourage (public) agricultural research, which has practically ground to a halt since the 1980s.”

This week, Science published a very important article by the US Department of Agriculture Economic Research Service’s Keith Fuglie and coauthors, in which the authors look at the role of private agricultural research. The title of the article is “The Contribution of Private Industry to Agricultural Innovation,” and the abstract is as follows:

Most of the increase in global agricultural production over the past half-century has come from raising crop and livestock yields rather than through area expansion. This growth in productivity is attributed largely to investments in research and innovation. Since around 1990, there has been a decline in the rate of growth in yield per area harvested for several important crops. In parallel, the rate of growth in public spending on agricultural research and development (R&D) has also fallen, which may account for declining crop yield growth and may be contributing to rising food prices.

The emphasis is mine. In the conclusion of their article, the authors highlight the reasons why private agricultural research might not be a good substitute for public agricultural research.

First off, they note, a decrease in public agricultural research may well lead to lower returns to private agricultural research. Second, there is a great deal of market power among the firms that conduct private agricultural research — a few firms dominate the market, do most of the R&D, and hold patents, which creates important entry barriers (though, I should note, R&D is often only possible when one has some amount of market power).

Third and most importantly, private agricultural research only focuses on what’s profitable, which means that private R&D focuses on fewer crops than public R&D does, though the authors recognize that incentives to focus on other crops, technologies, and markets can be altered by policy.