Public Funding for Research
into Specialty Crops
Julian Alston
Department of Agricultural and Resource Economics
University of California, Davis
December 7, 2006
Outline

Introduction

Trends in U.S. Public Agricultural R&D




The Economics of Specialty Crops R&D





Economic Rationale for Lower ARIs for Specialty Crops
Sources of Market Failure
Rates of Return to Specialty Crops R&D
Prices and Productivity Growth
Interpretation of Evidence and Implications


Overall Funding Trends
Commodity Orientation
Congruence of R&D and Value of Production
Collective Action Programs?
Conclusion
U.S. Public
Agricultural R&D, 2004

Intramural USDA research

State Agricultural Experiment Stations




30 percent federal sources
47 percent state government
22 percent from industry etc.
Extension


21 percent federal sources
79 percent within-state sources
Figure 1.
US Public Sector Agricultural R&D, 1890-2004
Expenditures
(millions of 2000 U.S. dollars)
Percent
3,000
70
USDA intramural as share of total public
60
2,500
SAES Total
50
2,000
40
1,500
30
1,000
20
USDA Intramural
500
2004
1998
1992
1986
1980
1974
1968
1962
1956
1950
1944
1938
1932
1926
1920
1914
1908
1902
1896
1890
0
10
0
Figure 2.
SAES Research Expenditures by Source of Funds
Expenditures
(millions of 2000 U.S. dollars)
Percent
80
3,000
State
Other sources
Other sources share of total SAES
Federal
State share of SAES total
70
2,500
60
2,000
50
40
1,500
30
1,000
20
500
10
0
2004
1998
1992
1986
1980
1974
1968
1962
1956
1950
1944
1938
1932
1926
1920
1914
1908
1902
1896
1890
0
Figure 3.
Extension Expenditures by Source of Funds
Expenditures
(millions of 2000 U.S. dollars)
2,000
60
State
Non-tax
State share of extension
1,800
County
Federal
50
1,600
1,400
40
1,200
1,000
30
800
20
600
400
10
2003
1999
1995
1991
1987
1983
1979
1975
1971
1967
1963
1959
1955
1951
1947
1943
1939
1935
1931
1927
1923
1919
0
1915
200
0
R&D Funding
for Specialty Crops

Commodity Orientation
Figure 4.
Allocation of US Public Agricultural R&D, 1975-2004
2004
1975
22%
23%
42%
41%
12%
13%
23%
Other crops
Total livestock
24%
Specialty crops
Other (incl. non-commodity specific)
Table 2.
Shares of Public R&D, 1975-2004
1975
1980
1990
(percentage)
2000
2004
Crops total
Specialty crops
Other (non specialty crops)
Livestock total
35.9
12.8
23.2
23.0
37.4
12.9
24.6
24.3
36.2
12.8
23.4
25.8
36.6
13.1
23.5
26.7
33.6
11.9
21.8
24.0
Other total (includes non-commodity)
41.1
38.3
38.0
36.7
42.4
100.0
100.0
100.0
100.0
100.0
Share of crop total
Grains and oilseeds
Pasture and forage
Other crop
Specialty crops
Vegetables
Fruits and nuts
Ornamentals
29.7
8.3
26.4
35.5
14.2
16.0
5.3
31.3
9.5
24.8
34.4
14.4
14.8
5.2
34.2
7.9
22.6
35.4
16.2
14.3
5.0
35.3
6.1
22.8
35.9
16.0
14.1
5.8
34.5
5.6
24.7
35.3
15.2
14.3
5.8
Share of livestock total
Beef Cattle
Dairy Cattle
Poultry
Swine
Other livestock
30.5
24.1
16.7
12.7
16.1
32.6
22.2
13.7
13.1
18.3
26.1
20.4
13.6
13.5
26.4
20.5
18.4
12.9
13.6
34.6
20.9
16.7
13.0
10.4
39.1
Share of Public Ag. R&D
All Research
R&D Funding
for Specialty Crops

Research Intensities and Congruence
Figure 5a.
Agricultural Research Intensities, 2004
ARIs (%)
SAES and intramural
Corn
Soybeans
Othe ornamentals and nursery
Wheat
Greens and leafy vegetables
Grapes (fresh, dried and wine)
Potato
Almonds
Tomato (fresh and processed)
Rice
Apples
Sorghum
Strawberries
Oranges
Onion, garlic, leek, shallot
Sugar beets
Sugar cane
Barley
Mushrooms
Other stone fruits (e.g.,
Peppers
Cherries
Peaches
Other berries
Beans
Walnuts
Carrot
Pears
Lemons
Corn
Soybeans
Othe ornamentals and nursery
Wheat
Greens and leafy vegetables
Grapes (fresh, dried and wine)
Potato
Almonds
Tomato (fresh and processed)
Rice
Apples
Sorghum
Strawberries
Oranges
Onion, garlic, leek, shallot
Sugar beets
Sugar cane
Barley
Mushrooms
Other stone fruits (e.g.,
Peppers
Cherries
Peaches
Other berries
Beans
Walnuts
Carrot
Pears
Lemons
0
20
40
60
80
100
120
140
(million US$)
SAES total
Intramural total
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50
(%)
ARIs
Figure 5b.
Agricultural Research Intensities, 2004
Value share of total crop production (%)
ARIs (%)
Corn
Soybeans
Othe ornamentals and nursery
Wheat
Greens and leafy vegetables
Grapes (fresh, dried and wine)
Potato
Almonds
Tomato (fresh and processed)
Rice
Apples
Sorghum
Strawberries
Oranges
Onion, garlic, leek, shallot
Sugar beets
Sugar cane
Barley
Mushrooms
Other stone fruits (e.g.,
Peppers
Cherries
Peaches
Other berries
Beans
Walnuts
Carrot
Pears
Lemons
0.00
Corn
Soybeans
Othe ornamentals and nursery
Wheat
Greens and leafy vegetables
Grapes (fresh, dried and wine)
Potato
Almonds
Tomato (fresh and processed)
Rice
Apples
Sorghum
Strawberries
Oranges
Onion, garlic, leek, shallot
Sugar beets
Sugar cane
Barley
Mushrooms
Other stone fruits (e.g.,
Peppers
Cherries
Peaches
Other berries
Beans
Walnuts
Carrot
Pears
Lemons
5.00
10.00
15.00 20.00 25.00
(%)
Value of production share
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50
(%)
ARIs
Figure 6. SAES Spending and Value of Output, 2004
Specialty Crops
Total (all commodities)
100
100
90
90
80
Value of production
SAES Total
Value of production
48
45
42
39
36
33
30
27
24
21
State Rank
State Rank
SAES Total
18
48
45
42
39
36
33
30
27
24
21
18
0
15
0
12
10
9
10
6
20
3
20
15
30
12
30
40
9
40
50
6
50
60
3
60
70
0
Cumulative share (%)
70
0
Cumulative share (%)
80
Economics of
Specialty Crops R&D

Economic Rationale for Lower ARIs

Political-economic factors






Individually small crops
Collectively small in many states
Low spillovers
Diverse interests
Inertia in spending patterns
Smaller payoff?




GARB = kV (size of industry matters)
Supply and demand conditions
Costs of research, fixed factors
Economies of scale and scope
Economics of
Specialty Crops R&D

Sources of Market Failure



Usual factors, perhaps magnified
Health-care system
Rates of return to research,
Table 4.
Rates of Return to Specialty Crops R&D
Crop
Potato
Total
Observations
number of
Total
U.S.
studies
Number
Share
count
percent
Rate of return
minimum maximum
average
percent per annum
11
21
47.6
1.05
100.0
44.8
8
33
48.5
1.4
92.8
30.7
19
54
48.1
1.05
100.0
36.2
Corn
20
62
8.1
-6.9
96.9
40.0
Wheat
32
103
24.3
11.1
97.0
47.9
Rice
31
15
6.5
11.44
99.6
54.8
111
520
18.3
-7.4
100.0
44.5
Other specialty crops
All specialty crops
All crops
Economics of
Specialty Crops R&D

Prices and productivity growth
Figure 8.
Commodity Shares of Value, 1950-52 and 2002-04
0.60
0.51
0.50
($87,779 mill)
0.45
0.40
Percentage
0.40
($51,996 mill)
0.32
0.30
($ 43,634mill)
0.21
0.20
0.08
0.10
0.00
Livestock
Average 1950, 1951, and 1952
Field crops
Specialty crops
Average 2002, 2003, and 2004
Figure 9.
Nominal Prices of Commodities, 1949-2004
600
Price Index (1949=100)
500
400
300
200
100
0
1949
1954
1959
1964
1969
1974
1979
1984
1989
1994
1999
2004
Year
Fruit and nut crops
Vegetables
Field crops
Nur. & greenhouse
Livestock
Specialty crops
Figure 10.
Real Prices (GDP-IPD) of Commodities, 1949-2004
140
Price Index (1949=100) .
120
100
80
60
40
20
0
1949
1954
1959
1964
1969
1974
1979
1984
1989
1994
1999
Year
Fruit and nut crops
Nur. & greenhouse
Vegetables
Livestock
Field crops
Specialty crops
2004
Figure 11.
Growth Rates of Real Prices, 1949-2004
Average Annual Rates of Decline (percentage) .
0.00%
-0.50%
-1.00%
Nursery &
greenhouse
Vegetables
Fruit and nut
crops
Specialty crops
-1.50%
Livestock
-2.00%
-2.50%
Field crops
Table 5.
Growth in Prices and Production, 1949-2004
Commodity Category
Livestock
Percentage Changes between 1949 and 2004 in
Production Nominal
Real
Supply Growth
Price
Price
ε = 1.0
ε = 0.5
112
207
–55.1
167.1
139.6
Field Crops
178
90
–72.4
250.4
214.2
Vegetables
162
489
–27.9
189.9
176.0
Fruits and Nuts
183
419
–22.5
205.5
194.3
Greenhouse and Nursery
642
534
–20.2
662.2
652.1
Collective Action

California marketing programs




cover 55 percent of CA production, by value,
and 74 percent for fruits and nuts
spent over $200 million in 2002, and ~$150 million
for specialty crops
spent < 10 percent of that amount on research
Check-off funds with matching support from
the federal or state government may provide
more enduring and larger total support for
specialty crops R&D
Conclusion

In 2004 $516.7 million was spent on specialty
crops R&D

Externality arguments could justify spending
more but . . . .

Increased total funding could be achieved by
the development of a collective action
program, with joint public-private funding