Productivity Growth in U.S. Agriculture: 1948-2013

By Ball, V. Eldon; Nehring, Richard et al. | International Productivity Monitor, Spring 2016 | Go to article overview

Productivity Growth in U.S. Agriculture: 1948-2013


Ball, V. Eldon, Nehring, Richard, Wang, Sun Ling, International Productivity Monitor


ABSTRACT

It is widely reported that productivity growth is the main contributor to output growth in U.S. agriculture. This article provides estimates of output growth over the postwar period and decomposes that growth into the contributions of input growth and productivity growth. The analysis is based on recently revised production accounts for agriculture. Our findings are fully consistent with those reported in the literature. Productivity growth dominates input growth as a source of output growth in the sector.

THE RISE IN AGRICULTURAL productivity has long been chronicled as the single most important source of output growth in the U.S. farm sector. (2) Though their methods differ in important ways, the major sectoral productivity studies by Kendrick and Grossman (1980), Jorgenson, Gollop, and Fraumeni (1987), Jorgenson (1990), and Jorgenson and Gollop (1992) share this common conclusion. In a more recent study, Jorgenson, Ho, and Stiroh (2005) find that productivity growth over the 1977-2000 period accounted for nearly 80 per cent of output growth in agriculture. This compares with only 19 per cent for the economy as a whole (Bureau of Labor Statistics, U.S. Department of Labor). Moreover, the rate of productivity growth over this period in agriculture (1.9 per cent) was nearly 3 times the corresponding rate in the non-farm economy (0.69 per cent).

The U.S. Department of Agriculture (USDA) has been monitoring the industry's productivity performance for decades. In fact, the USDA in 1960 was the first agency to introduce multifactor productivity measurement into the Federal statistical program. Today, having incorporated recommendations made by an American Agricultural Economics Association taskforce (USDA, 1980) and by a second more recent panel (Shumway et al., 2014), the department's Economic Research Service (ERS) bases its official productivity statistics on a sophisticated system of production accounts. (3) The USDA model of productivity growth is based on the translog transformation frontier. It relates the growth rates of multiple outputs to the cost-share weighted growth rates of labour, capital, and intermediate inputs.

The applied USDA model is quite detailed. The changing demographic character of the agricultural labour force is used to construct a quality-adjusted index of labour input. Similarly, much asset-specific detail underlies the measure of capital input. The index of capital input is formed by aggregating over the various capital assets using cost-share weights based on asset-specific rental prices. The contributions of feed and seed, chemicals, energy, and purchased services to output growth are captured in the index of intermediate inputs. An important innovation is the use of hedonic price indexes in constructing measures of fertilizer and pesticides consumption. The result is a USDA time series of total factor productivity (TFP) indexes now spanning the 1948-2013 period.

This article provides a complete discussion of the steps taken to construct the revised system of accounts and measures of productivity. We then compare the contributions of input growth and productivity growth to output growth in the farm sector. The important role of productivity growth in agriculture becomes immediately apparent.

We also examine the importance of changing input quality as a source of output growth. The observation, first made by Griliches (1964) some fifty years ago, that improved labour quality of the agricultural labour force is an important determinant of the sector's output growth is confirmed in this analysis.

The article's major conclusion is that productivity growth has been the principal source of output growth in agriculture over the postwar period. Averaging nearly 1.5 per cent per year, growth in productivity accounted for more than 95 per cent of the growth in output.

Changes in input quality have made significant contributions to input growth and, therefore, output growth. …

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