This study analyzes the value of agricultural research to Florida by examining the effect of research spending on agricultural productivity, as measured by a total factor productivity index, and profitability, as measured by net farm income. Results suggest that research expenditures do increase agricultural productivity in the state. However, agricultural productivity does not affect net cash income. Further, the economic rents to the productivity gains do not accrue to land values. Instead, the economic value of research innovations accrues more to consumers than to producers. Thus, consumers are the ultimate beneficiaries of agricultural research in Florida, thereby justifying public funding for agricultural research.
Key Words: cointegration, research and development, state expenditures, total factor productivity
JEL Classifications: H40, H72, Q16
In an age of increased scrutiny of state and federal expenditures, some have questioned the public funding of the 10 universities that comprise the State University System in Florida, including the University of Florida (Gainesville, FL), which is its primary Land Grant University. Under its Land Grant mission, the University of Florida produces several outputs, including undergraduate and graduate education, service to communities and special interest groups, and research. Among this collection of outputs, research is typically the most controversial. The controversy is magnified in the case of the Institute of Food and Agricultural Sciences (IFAS) at the University of Florida, the primary mission of which involves research. This article analyzes agricultural profitability resulting from productivity gains attributable to investment in IFAS research and development. Results indicate that spending on IFAS research has directly increased the level of agricultural productivity in the state, but the increased productivity does not directly increase agricultural profitability in the state. Specifically, empirical results suggest that the primary beneficiary of agricultural research in Florida has been the consumer. Such a conclusion has dramatic implications for the types of technologies that the state should invest in through IFAS. In addition, it should be noted that neither productivity nor profitability measures incorporate changes in the effect of agriculture on the environment. This exclusion is significant given the increased emphasis of environmental implications of production agriculture within the agricultural research mission over time.
What Is Productivity?
The most basic definition of productivity involves the quantity of output that can be derived from a fixed quantity of inputs. For example, most would agree that a gain in productivity has occurred if corn yield increased from 70 bushels per acre to 75 bushels per acre given the same set of inputs (i.e., pounds of fertilizer or hours of labor). However, if this increase in corn yield was the result of increased fertilizer use, then the yield increase implied by technological change would be subject to some debate. Similarly, as discussed by Griliches, if the yield increase resulted not from quantity of fertilizer applied, but the quality of fertilizer applied, should the increased yield be attributed to increases in agricultural productivity or increased productivity for fertilizer suppliers? In addition, measurement of productivity is complicated by the use of multiple inputs in production and the production of multiple outputs. To overcome these difficulties, the United States Department of Agriculture develops productivity measures based on aggregate output and input measures.1
Ball, Butault, and Nehring develop a detailed productivity index presented in Table 1. The measure developed from these aggregate output and input measures are referred to as index numbers. The index created in this case is called the total factor productivity index (TFP). These results indicate that TFP for agriculture in Florida rose from 0. …