US agricultural productivity growing at 1.42 percent annually, powering US competitiveness

In Washington, the USDA released its Agricultural Productivity Growth in the United States: Measurement, Trends, and Drivers.  This report examines changes and trends in U.S. agricultural inputs (e.g., land and labor), output (e.g., crops and livestock), and productivity over the last six decades and the drivers behind productivity changes. The main findings of the report include that between 1948 and 2011, U.S. agricultural output grew at 1.49 percent per year. With little growth in total input use during that period, the extraordinary performance of the U.S. farm sector was driven mainly by productivity growth, at an annual rate of 1.42 percent.

In an article in Amber Waves, the USDA writes: “The role of productivity growth in agricultural output growth has become more important since 1981.

“Although the use of labor and land in agriculture declined between 1948 and 1980, aggregate input use increased at an average rate of 0.7 percent per year due to dramatic increases in intermediate goods and capital use. However, since 1981, intermediate input use has grown little and the use of capital input declined through the mid-2000s. Altogether, aggregate input in agriculture declined 0.5 percent per year between 1980 and 2011.

Farmers invested less in machinery and farm buildings in the 1980s and 1990s due to changes in the economic environment. Capital input in agriculture increased 2 percent per year between 1973 and 1979, partly to capitalize on rapid growth in export demand resulting from increased global liquidity, rising incomes, and production shortfalls in some countries. In addition, declining interest rates and rising inflation contributed to a lower opportunity cost of invested capital.

However, in the early 1980s, restrictive monetary policy by the Federal Reserve pushed up interest rates and the dollar appreciated on foreign exchange markets. The average real interest rate rose to nearly 16 percent in 1981-83 and remained high until the 2000s. This mix of fiscal stimulus and monetary restraint slowed the growth in U.S. agricultural exports and discouraged capital investment during this period. These developments on the input side made the role of TFP growth more critical to agricultural output growth in the last several decades.

http://www.ers.usda.gov/amber-waves/2015-september/us-agricultural-productivity-growth-the-past,-challenges,-and-the-future.aspx#.VfSIBrTAB_1

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