|
This data set provides estimates of productivity growth in the
U.S. farm sector over the period 1948-2004, and estimates
of the growth and relative levels of productivity across the individual
States for the 1960-2004 period.
The data series has been revised
with this release. Historically, the Farm Labor Survey, administered
by USDA's National Agricultural Statistics Service, provided
estimates of the number of self-employed and unpaid family members
working on farms, but this series was discontinued in 2002. We
have adopted a new source for this information, drawing these
data from the decennial Census of Population and the annual Current
Population Survey (CPS). The new data source allowed us to extend
estimates beyond 2002, but also required that we revise estimates
for the years prior to 2002.
Studies About Agricultural Productivity
The rise in agricultural productivity has long been chronicled
as the single most important source of economic growth in the
U.S. farm sector. Though their methods differ in important ways,
the major sectoral productivity studies by Kendrick
and Grossman (1980) and Jorgenson,
Gollop, and Fraumeni (1987) share this common
conclusion. In a more recent study, Jorgenson
and Gollop (1992) find that productivity growth
over the 1947-85 period accounted for 82 percent of output growth
in agriculture, compared with 13 percent in the private nonfarm
economy. Moreover, the rate of productivity growth over this
period in agriculture (1.58 percent) was nearly four times the
corresponding rate in the nonfarm economy (0.44 percent).
Further evidence of the importance of productivity growth in agriculture
is provided by Jorgenson, Ho, and Stiroh
(2005). They find that
productivity growth in agriculture averaged 1.9 percent over the
1977-2000 period and output grew at a 2.4 percent average annual
rate over this period. Thus, productivity growth accounted for
almost 80 percent of the growth of output in the farm sector. Only
three of the forty-four sectors covered by the Jorgenson et al.
study exhibited higher rates of productivity growth than did agriculture.
How USDA Estimates Productivity
USDA has been monitoring the agriculture's productivity
performance for decades. In fact, in 1960, USDA was the first
agency to introduce multifactor productivity measurement into the
Federal statistical program. Today, the Department's Economic Research
Service (ERS) publishes total factor productivity (TFP)
measures based on a sophisticated system of farm production accounts.
The ERS TFP model is based on the transcendental logarithmic (translog)
transformation frontier. It relates the growth rates of multiple
outputs to the cost-share weighted growth rates of labor, capital,
and intermediate inputs.
See Ball et al. (1997, 1999) for a complete description
of the USDA model.
The applied USDA model is quite detailed. The demographic
character of the agricultural workforce is used to build a quality-adjusted
index of labor input. The estimates of depreciable capital are
derived by representing capital stock at each point of time as
a weighted sum of past investments where the weights correspond
to the relative efficiencies of assets of different ages. The
same pattern of decline in efficiency is used for both capital
stock and the rental price of capital services, so that the requirement
for internal consistency of a measure of capital input is met.
The index of land input is based on the
physical characteristics (i.e., quality)
of a parcel of
land and its location relative to population centers. The contributions
of feed, seed, energy, and agricultural chemicals are captured
in the index of intermediate inputs. An important innovation
is the use of hedonic price indexes in constructing measures of
fertilizer and pesticide consumption.
The result is a USDA time
series of total factor productivity indexes spanning the
period 1948-2004 (see tables 1-2).
Measures of economic performance of the individual States are
also compiled for the period 1960-2004. The State series provides
estimates of the growth and relative levels of total factor productivity
(see tables
3-22).
Farm Sector Productivity Growth in the U.S.
Input growth typically has been the dominant source of economic
growth for the aggregate economy, and for each of its producing
sectors. Jorgenson, Gollop, and Fraumeni (1987) find this to be
the case for the aggregate economy for every subperiod over 1948-79.
Denison (1979) draws a similar conclusion
for all but one subperiod, covering the longer period 1929-76.
In their sectoral analysis, Jorgenson, Gollop, and Fraumeni find
that output growth relies most heavily on input growth in 42 of
47 private business sectors in the 1948-79 period, and in a more
aggregated study (Jorgenson and Gollop, 1992) that extends through
1985, in 8 of 9 sectors.
Agriculture turns out to be one of the few exceptions: productivity
growth dominates input growth. This
is confirmed in the graph and
in the table below that
reports the sources of output growth in the farm
sector for the full 1948-2004 period and 10 peak-to-peak subperiods.
(The subperiods are not
chosen arbitrarily, but are measured from cyclical peak to peak.
Since the data reported for each subperiod are average annual growth
rates, the unequal lengths of the subperiods do not affect the
comparisons across subperiods. This convention and these subperiods
have been adopted by the major productivity studies). Applying the USDA model, output growth equals the sum of
labor, capital, and material inputs and TFP growth. (The contribution
of each input equals the product of the input's growth rate and
its respective share of total cost.)
| Sources of
growth in the U.S. farm sector (average annual growth rates
in percent) |
| |
1948-
2004 |
|
1948-
1953 |
1953-
1957 |
1957-
1960 |
1960-
1966 |
1966-
1969 |
1969-
1973 |
1973-
1979 |
1979-
1989 |
1989-
1999 |
1999-
2004 |
 |
| Labor |
-0.56 |
|
-0.86 |
-1.14 |
-0.89 |
-0.86 |
-0.65 |
-0.42 |
-0.22 |
-0.35 |
-0.24 |
-0.78 |
| Capital |
-0.08 |
|
0.61 |
0.01 |
-0.06 |
0.06 |
0.14 |
-0.12 |
0.39 |
-0.67 |
-0.28 |
-0.11 |
| Materials |
0.61 |
|
1.56 |
1.16 |
1.45 |
0.74 |
1.23 |
0.76 |
1.01 |
-0.66 |
1.24 |
-1.15 |
| Total factor productivity |
1.77 |
|
0.45 |
1.00 |
3.80 |
1.11 |
1.56 |
2.24 |
1.28 |
2.53 |
1.44 |
2.79 |
 |
| Total output growth |
1.74 |
|
1.76 |
1.03 |
4.31 |
1.04 |
2.28 |
2.46 |
2.46 |
0.86 |
2.17 |
0.75 |
 |
Output growth equals the sum contributions
of labor, capital, and materials inputs and total factor
productivity growth.
These data are available in Excel as Table
2. |
The singularly important role of productivity growth in agriculture
is made all the more remarkable by the dramatic contraction in
labor input in the sector, a pattern that persists through
every subperiod. Over the full 1948-2004 period, labor
input declined
at an average annual rate of nearly 2.6 percent. When weighted
by its 22-percent share in total costs, the contraction in
labor input contributes an annual average -0.56 percentage point
per year to output growth.
Capital input in the sector exhibits a different history.
Its contribution to output growth alternates between positive and
negative over the 1948-2004 period. On average, however, capital,
like labor, contracts over the full period. Its negative growth
contributes an annual average -0.08 percentage point to output
growth.
Material inputs contribution was negative
in two of the three most recent subperiods, but averaged a substantial
positive rate equal to 0.61 percent per year over the full period.
Though large, this positive contribution was not sufficient to
outweigh the negative contributions of labor and capital.
The net contribution of all three inputs was -0.03 percentage point
per year on average, leaving the positive growth in farm sector
output wholly attributable to productivity growth.
Measuring State Productivity
A properly constructed measure of productivity growth for the
aggregate farm sector is certainly important. It provides a useful
summary statistic indicating how economic welfare is being advanced
through productivity gains in agriculture, but it may not reflect
important regional or State-specific trends. For
this reason, USDA has constructed estimates of the growth and relative
levels of productivity for the 48 contiguous States for the 1960-2004
period (estimates are not made for Alaska and Hawaii). These indexes,
expressed relative to the level of TFP in Alabama in 1996,
are presented in table
19 along
with their percentage rates of growth. In the
table below, we
rank the States by their level of TFP in 2004. We also include
in the table each State's rank in 1960 and the average annual
percentage growth from 1960 to 2004.
| States ranked by level and growth
of total factor productivity |
| State |
Rank in 2004 |
Level in 2004 |
Rank in 1960 |
Level in 1960 |
Average annual change,
1960-2004 |
| Rank |
Change (%) |
| California |
1 |
1.7143 |
2 |
0.8241 |
25 |
1.66 |
| Florida |
2 |
1.6143 |
1 |
0.8563 |
38 |
1.44 |
| Iowa |
3 |
1.5222 |
4 |
0.6700 |
17 |
1.87 |
| Illinois |
4 |
1.5221 |
7 |
0.6424 |
12 |
1.96 |
| Delaware |
5 |
1.4287 |
6 |
0.6472 |
23 |
1.80 |
| Idaho |
6 |
1.4186 |
15 |
0.5850 |
9 |
2.01 |
| Indiana |
7 |
1.4166 |
27 |
0.5191 |
5 |
2.28 |
| Washington |
8 |
1.4165 |
25 |
0.5272 |
6 |
2.25 |
| Rhode Island |
9 |
1.4089 |
36 |
0.4731 |
2 |
2.48 |
| Georgia |
10 |
1.3843 |
12 |
0.5966 |
14 |
1.91 |
| Arizona |
11 |
1.3747 |
3 |
0.7006 |
34 |
1.53 |
| Arkansas |
12 |
1.3613 |
16 |
0.5824 |
13 |
1.93 |
| North Carolina |
13 |
1.3570 |
11 |
0.6030 |
20 |
1.84 |
| Massachusetts |
14 |
1.3303 |
33 |
0.4859 |
4 |
2.29 |
| Oregon |
15 |
1.3072 |
45 |
0.4205 |
1 |
2.58 |
| Connecticut |
16 |
1.3055 |
29 |
0.4969 |
7 |
2.20 |
| New Jersey |
17 |
1.2698 |
10 |
0.6097 |
24 |
1.67 |
| Maryland |
18 |
1.2374 |
19 |
0.5541 |
21 |
1.83 |
| Minnesota |
19 |
1.2321 |
23 |
0.5445 |
19 |
1.86 |
| Ohio |
20 |
1.2023 |
39 |
0.4653 |
8 |
2.16 |
| Alabama |
21 |
1.1791 |
5 |
0.6599 |
40 |
1.32 |
| Nebraska |
22 |
1.1569 |
17 |
0.5721 |
30 |
1.60 |
| Maine |
23 |
1.1458 |
30 |
0.4966 |
15 |
1.90 |
| New York |
24 |
1.1351 |
14 |
0.5911 |
36 |
1.48 |
| Mississippi |
25 |
1.1225 |
37 |
0.4704 |
11 |
1.98 |
| South Carolina |
26 |
1.1223 |
21 |
0.5519 |
29 |
1.61 |
| South Dakota |
27 |
1.1169 |
22 |
0.5458 |
26 |
1.63 |
| Wisconsin |
28 |
1.1130 |
20 |
0.5537 |
31 |
1.59 |
| Michigan |
29 |
1.1093 |
47 |
0.3844 |
3 |
2.41 |
| Vermont |
30 |
1.0699 |
26 |
0.5243 |
28 |
1.62 |
| Pennsylvania |
31 |
1.0628 |
34 |
0.4794 |
22 |
1.81 |
| Colorado |
32 |
1.0306 |
8 |
0.6348 |
45 |
1.10 |
| North Dakota |
33 |
1.0111 |
41 |
0.4430 |
16 |
1.88 |
| New Hampshire |
34 |
1.0100 |
46 |
0.4188 |
10 |
2.00 |
| Kansas |
35 |
1.0054 |
9 |
0.6333 |
46 |
1.05 |
| Missouri |
36 |
0.9939 |
28 |
0.5001 |
32 |
1.56 |
| Kentucky |
37 |
0.9676 |
35 |
0.4737 |
27 |
1.62 |
| Virginia |
38 |
0.9670 |
31 |
0.4938 |
35 |
1.53 |
| Utah |
39 |
0.9619 |
32 |
0.4865 |
33 |
1.55 |
| Nevada |
40 |
0.9602 |
18 |
0.5572 |
42 |
1.24 |
| Louisiana |
41 |
0.9583 |
44 |
0.4222 |
18 |
1.86 |
| New Mexico |
42 |
0.8872 |
38 |
0.4700 |
37 |
1.44 |
| Texas |
43 |
0.8865 |
24 |
0.5371 |
43 |
1.14 |
| Montana |
44 |
0.8092 |
42 |
0.4418 |
39 |
1.38 |
| Tennessee |
45 |
0.7616 |
40 |
0.4642 |
44 |
1.13 |
| Oklahoma |
46 |
0.7385 |
13 |
0.5918 |
48 |
0.50 |
| West Virginia |
47 |
0.5777 |
48 |
0.3278 |
41 |
1.29 |
| Wyoming |
48 |
0.5673 |
43 |
0.4252 |
47 |
0.66 |
| These data are available in Excel as Table
22. |
One remarkable similarity exists across all States for the full
1960-2004 period. Every State exhibited a positive and generally
substantial average annual rate of TFP growth. There is considerable
variance, however. The median TFP growth rate over the 1960-2004
period was 1.67 percent per year. However, 10 States had productivity
growth rates averaging more than 2 percent per year. Only Oklahoma
and Wyoming had average annual rates of growth less than 1 percent
per year. The reported average annual rates of growth ranged from
0.50 percent for Oklahoma to 2.58 percent for Oregon (see
map).
Cumulated over the entire 45-year period, productivity growth in
Oklahoma was responsible for only a 25-percent increase in that
State's output. Over the same period, TFP growth in Oregon resulted
in a 319-percent increase in the State's agricultural output.
The wide disparity in productivity growth rates over the 1960-2004
period resulted in substantial changes in the rank order of States.
Florida and California remain at the top of the pack, although
California rose from second in 1960 to first in 2004.
The largest relative gains in TFP were made by Indiana, Washington,
and Oregon. Indiana jumped from 27th to 7th among the 48 States,
Washington rose from 25th to 8th, and Oregon advanced from 45th
to 15th. This finding is consistent with Gerschenkron's
(1952) notion of the advantages of relative backwardness. Those States/regions
that lagged particularly far behind the technology leaders had
the most to gain from the diffusion of technical knowledge, and,
hence, exhibited the most rapid rates of productivity growth.
Methods
Ball et al. (2004) estimated each State's
growth and relative level of productivity for the period 1960-99
using an index number approach, and this method is used to extend
the series through 2004. A productivity index is generally defined
as an output index divided by an index of inputs. The individual
State productivity indices are formed from Fisher quantity indices
of outputs and inputs. In comparing relative levels of productivity,
we first construct bilateral Fisher indices of output and input
among States. Unfortunately, there is no guarantee of transitivity
in such comparisons, i.e. direct comparisons between two States
may give different results than making indirect comparisons through
other States. Eltetö and
Köves
(1964) and Szulc (1964) proposed independently a
method ("EKS" index) which achieves transitivity
while minimizing the deviations from the bilateral comparisons.
The EKS index is based on the idea that the most appropriate
index to use when comparing two States is the binary Fisher
index. However, when the number I of States in
a comparison is greater than two, the application of the Fisher
index number procedure to the I(I-1)/2 possible pairs
of States gives results that do not satisfy Fisher's circularity
test. The problem, therefore, is to obtain results that satisfy
transitivity, and that deviate the least from the bilateral Fisher
indexes.
Let denote
the bilateral Fisher quantity index for State j relative
to State k. If denotes
the multilateral quantity index, then the EKS method suggests
that should
deviate the least from the bilateral quantity index .
Thus, should
minimize the distance criterion:
}^{2})
Using the first-order conditions for a minimum, it can be shown
that the multilateral quantity index with the minimum distance
is given by:
The EKS quantity index may, therefore, be expressed as the
geometric mean of the I indirect comparisons of j and k through
other States.
We have constructed EKS indices of relative levels of output
and input among all 48 States for a single base year.
We have also constructed these quantity indices for each State
for the period 1960-2004. We obtain indexes of output and input
quantities in each State relative to those in the base State
for each year by linking these time-series quantity indexes with
estimates of relative output and input levels for the base period.
Tables 3-22 present indexes of relative output, input, and productivity
levels among the States for the period 1960-2004, with a base
equal to unity in Alabama in 1996.
Production accounts used in constructing these indices are derived
from State and aggregate accounts for the farm sector constructed
by USDA. The accounts are consistent with a gross output model
of production. Output is defined as gross production leaving the
farm, as opposed to real value added. The existence of the value-added
function requires that intermediate inputs be separable from primary
inputs (capital and labor). This places severe restrictions on
marginal rates of substitution that are not likely to be realistic.
Moreover, even if the value-added function exists, the exclusion
of intermediate inputs assigns all measured technical progress
to capital and labor inputs, ruling out increased efficiency in
the use of purchased inputs. Accordingly, inputs are not limited
to capital and labor, but include intermediate inputs as well.
Both State and aggregate accounts view all of agriculture within
their respective boundaries as if it were a single farm. Output
includes all off-farm deliveries but excludes intermediate goods
produced and consumed on the farm. The difference is that output
in the aggregate accounts is defined as deliveries to final demand
and intermediate demands in the non-farm sector. State output accounts
include these deliveries plus interstate shipments to intermediate
farm demands.
The next section is organized by component measures:
Output
The output measure begins with disaggregated data for physical
quantities and market prices of crops and livestock compiled for
each State. The output quantity for each crop and livestock category
consists of quantities of commodities sold off the farm, additions
to inventory, and quantities consumed as part of final demand in
farm households during the calendar year. Off-farm sales in the
aggregate accounts are defined only in terms of output leaving
the sector, while off-farm sales in the State accounts include
sales to the farm sector in other States as well.
One unconventional aspect of our measure of total output is the
inclusion of goods and services from certain non-agricultural or
secondary activities. These activities are defined as activities
closely linked to agricultural production for which information
on output and input use cannot be separately observed. Two types
of secondary activities are distinguished. The first represents
a continuation of the agricultural activity, such as the processing
and packaging of agricultural products on the farm, while services
relating to agricultural production, such as machine services for
hire, are typical of the second.
The total output of the industry represents the sum of output
of agricultural goods and the output of goods and services from
secondary activities. We evaluate industry output from the point
of view of the producer; that is, subsidies are added and indirect
taxes are subtracted from market values.
Intermediate Input
Intermediate input consists of goods used in production during
the calendar year, whether withdrawn from beginning inventories
or purchased from outside the farm sector or, in the case of the
State production accounts, from farms in other States. Open-market
purchases of feed, seed, and livestock inputs enter both State
and aggregate farm sector intermediate goods accounts. Withdrawals
from producers' inventories are also measured in output, intermediate
input, and capital input. Beginning inventories of crops and livestock
represent capital inputs and are treated in the discussion of capital
below. Additions to these inventories represent deliveries to final
demand and are treated as part of output. Goods withdrawn from
inventory are symmetrically defined as intermediate goods and recorded
in the farm input accounts.
Data on current dollar consumption of petroleum fuels, natural
gas, and electricity in agriculture are compiled for each State
for period 1960-2004. Prices of individual fuels are taken from
the Energy Information Administration's Monthly
Energy Review.
The index of energy consumption is formed implicitly as the ratio
of total expenditures (less State and Federal excise tax refunds)
to the corresponding price index.
Pesticides and fertilizers have undergone significant changes
in input quality over the 1960-2004 period. Since input price and
quantity data used in a study of productivity must be denominated
in constant-efficiency units, we construct price indexes for fertilizers
and pesticides from hedonic regression results. A price index of
fertilizers is formed by regressing the prices of single-nutrient
and multigrade fertilizer materials on the proportion of nutrients
contained in the materials. Price differences across pesticides
are assumed due to differences in physical characteristics such
as toxicity, persistence in the environment, and leaching potential.
The corresponding quantity indexes are formed implicitly as the
ratio of the value of each aggregate to its price index.
Other purchased inputs collectively account for about 15 percent
of the input service flow. We compute price and implicit quantity
indexes of purchased services such as contract labor services,
custom machine services, machine and building maintenance and repairs,
and irrigation from public sellers of water. Indexes of total intermediate
input are constructed by aggregating across each category of intermediate
input described above.
Capital Input
Measures of capital input and capital service prices for each
State are estimated from the capital stock and rental price for
each asset type for each State.
The perpetual inventory method is used to develop stocks of depreciable capital
from data on investment.
Implicit
rental prices for each asset are based on the correspondence between
the purchase price of the asset and the discounted value of future
service flows derived from that asset.
Under the perpetual inventory method, capital stock at the end
of each period is measured as the sum of all past investments,
each weighted by its relative efficiency. We assume that the relative
efficiency of capital goods declines with age, giving rise to the
need for replacement of productive capacity. The proportion of
investment to be replaced is equal to the decline in efficiency
during each period. These proportions represent mortality rates
for capital goods of different ages. Replacement requirements in
each period are the weighted sum of past investments, where the
weights are the mortality rates. The change in capital stock in
any period is equal to the acquisition of new investment goods
less replacement requirements.
Estimating Replacement
To estimate replacement, we must introduce an explicit description
of the decline in efficiency. This function, d, may be
expressed in terms of two parameters, the service life of the
asset, say L, and a curvature or decay parameter, say ß. Initially,
we will hold the value of L constant and evaluate the efficiency
function for various values of ß. One possible form for the efficiency
function is given by:
/(L-\beta\tau),&space;&space;0\leq&space;\tau\leq&space;L)
This function is a form of a rectangular hyperbola that provides
a general model incorporating several types of depreciation as
special cases.
The value of ß is restricted only to values less than or equal
to one. For values of ß greater than zero, the efficiency of the
asset approaches zero at an increasing rate. For values less than
zero, efficiency approaches zero at a decreasing rate.
Little empirical evidence is available to suggest a precise value
for ß. However, two studies (Penson, Hughes and
Nelson, 1977; Romain,
Penson and Lambert, 1987) provide evidence that efficiency
decay occurs more rapidly in the later years of service, corresponding
to a value of ß in the
0 to 1 interval. For purposes of this study, it is assumed
that the efficiency of a structure declines slowly over most of
its service life until a point is reached where the cost of repairs
exceeds the increased service flows derived from the repairs, at
which point the structure is allowed to depreciate rapidly (ß=0.75).
The decay parameter for durable equipment (ß=0.5) assumes that
the decline in efficiency is more uniformly distributed over the
asset's service life.
Consider now the efficiency function that holds ß constant
and allows L to vary. This concept of variable service
lives is related to the concept of investment, where investment
is a bundle of different types of capital goods.
Each of the different types of capital goods is a homogeneous
group of assets in which the actual service life, L,
is a random variable reflecting quality differences, maintenance
schedules, etc. For each asset type, there exists some mean
service life,
,
around which there exists some distribution of actual service
lives. In order to determine the amount of capital available
for production, the actual service lives and their frequency
of occurrence must be determined. It is assumed that the underlying
distribution is the normal distribution truncated at points
two standard deviations above and below the mean service life.
Once the frequency of occurrence of a particular service
life has been determined, the efficiency function for that
service life is calculated using the assumed value of ß.
This process is repeated for all possible service lives. An
aggregate efficiency function is then constructed as a weighted
sum of the individual efficiency functions, using the frequency
of occurrence as weights. This function not only reflects changes
in efficiency, but also the discard distribution around the
mean service life of the asset.
Finally, beginning
inventories of crops and livestock are also included in capital
input. We estimate the stock of inventories using the perpetual
inventory method, assuming zero replacement.
Capital Rental Prices
The behavioral assumption underlying the derivation of the rental
price of capital is that firms buy and sell assets so as to maximize
the present value of the firm. This implies that firms will add
to the capital stock so long as the present value of the net revenue
generated by an additional unit of capital exceeds the purchase
price of the asset. This can be stated algebraically as:
\left(&space;1+r\right)}^{-t}&space;\right)>{w}_{K})
where p is the price of output, wK is
the price of investment goods, and r is the real discount
rate. To maximize net present value, firms will continue to add
to capital stock until this equation holds as an equality:
where c is the implicit rental price of capital.
The rental price consists of two components. The first term, rwK,
represents the opportunity cost associated with the initial investment.
The second term, is
the present value of the cost of all future replacements required
to maintain the productive capacity of the capital stock.
Let F denote the present value of the stream of capacity
depreciation on one unit of capital according to the mortality
distribution m:
}^{-\tau},)
where ,\:&space;&space;\tau=1,...,t.)
It can be shown that:
}^{-t}&space;\right)=\sum_{t=1}^{\infty}\:&space;{F}^{t}=\frac{F}{(1-F)})
so that
}.)
The real rate of return, r in the above expression, is
calculated as the nominal yield on investment grade corporate bonds,
less the rate of inflation as measured by the implicit deflator
for gross domestic product. An ex ante rate is then obtained by
expressing observed real rates as an ARIMA process. We then calculate F holding
the required real rate of return constant for that vintage of capital
goods. In this way, implicit rental prices, c, are calculated
for each asset type.
Indexes of capital input in each State are constructed by aggregating
over the different capital assets using as weights the asset-specific
rental prices. Service prices for capital input are formed implicitly
as the ratio of the total current dollar value of capital service
flows to the quantity index. The resulting measure of capital input
for each State is adjusted for changes in input quality.
Land Input
To obtain a constant-quality land stock, we first construct intertemporal
price indexes of land in farms. The stock of land is then constructed
implicitly as the ratio of the value of land in farms to the intertemporal
price index. We assume that land in each county is homogeneous,
hence aggregation is at the county level.
Differences in the quality of land across States and regions
prevent the direct comparison of observed prices. To account for
these quality differences, indexes of relative prices of land are
constructed using hedonic methods where land is viewed as a bundle
of characteristics which contribute to the output derived from
its use. According to the hedonic approach, the price of land represents
the valuation of the characteristics "that are bundled in it,"
and each characteristic is valued by its implicit price. However,
these prices are not observed directly and must be estimated from
the hedonic price function. If we observe different "quality combinations" selling
at different prices, it is possible to estimate, at the margin,
the prices of these characteristics.
The World Soil Resources Office of the USDA's Natural Resource
Conservation Service has compiled data on characteristics that
capture differences in land quality (see Eswaren,
Beinroth, and Reich (2003)). They develop a procedure for evaluating
inherent land quality, and use this procedure to assess land resources
on a global scale. We overlay U.S. State and county boundaries
onto this data. The result
of the overlay gives us the proportion of land area of each county
that is in each of the soil stress categories. These characteristics
include soil acidity, salinity, and moisture stress, among others.
The "level" of each characteristic is measured
as the percentage of the land area in a given region that is subject
to stress. A detailed description of the characteristics included
in the hedonic model is provided in Ball et
al. (2007). The environmental
attributes most highly correlated with land prices in major agricultural
areas are moisture stress and soil acidity. In areas with moisture
stress, agriculture is not possible without irrigation. Hence irrigation
(i.e., the percentage of the cropland that is irrigated) is included
as a separate variable. Because irrigation mitigates the negative
impact of acidity on plant growth, the interaction between irrigation
and soil acidity is included in the vector of characteristics.
In addition to environmental attributes, we also include a "population
accessibility" score for each county in each State. These indices
are constructed using a gravity model of urban development, which
provides a measure of accessibility to population concentrations.
A gravity index accounts for both population density and distance
from that population. The index increases as population increases
and/or distance from that population center decreases.
Labor Input
The USDA labor accounts for the aggregate farm sector incorporate
a demographic cross-classification of the agricultural labor force.
Matrices of hours worked and compensation per hour have been developed
for laborers cross-classified by sex, age, education, and employment
classemployee versus self-employed and unpaid family workers.
ERS developed a set of similarly formatted but otherwise demographically
distinct matrices of labor input and labor compensation by State
by combining the aggregate farm sector matrices with State-specific
demographic information available from the decennial census of
population. The result is State-by-year matrices of hours worked
and hourly compensation with cells cross-classified by sex, age,
education, and employment class and with each matrix consistent
with the USDA hours-worked and compensation totals.
Labor compensation (opportunity cost) data for self-employed and
unpaid family workers are not
observed. As a result, for each
State and year, self-employed and unpaid family workers in each
State are imputed using the mean wage earned by hired workers with
the same demographic characteristics.
Indexes of labor input are constructed for each State over the
1960-2004 period using the demographically cross-classified hours
and compensation data. Labor hours having higher marginal productivity
(wages) are given higher weights in forming the index of labor
input than are hours having lower marginal productivities. Doing
so explicitly adjusts indexes of labor input for quality change
in hours.
Ongoing and Planned Research
Productivity Growth in Agriculture and the Role of Public R&D
We use the production accounts for the States to estimate both
the Luenberger productivity indicator and its dual, the Bennet-Bowley
productivity indicator. This work takes a broader view of the production
process to account for the relationship between productivity change
and changes in prices and profits. This allows us to decompose
changes in profitability in agriculture into a normalized price
change indicator and a Bennet-Bowley productivity indicator. We
then investigate the relationship between productivity growth and
public investment in research and development. The relationship
between price change and R&D is negative, and there is a weak
negative relationship between R&D and profits, which is consistent
with our decomposition of profit change into price and productivity
components. Contact Eldon
Ball about this research.
Decomposition of Measured Agricultural Productivity Change Using
the Shadow Price Approach
The current U.S. Department of Agriculture practice for
measuring total factor productivity growth in agriculture
is based upon the economic approach to index numbers (Diewert,
1976; Caves, Christensen, and Diewert, 1982) and the assumption
that agricultural producers are both allocatively and technically
efficient. This approach relies exclusively on observed price and
quantity data. Therefore, if observed prices differ from prices
used in production decisions, the index number results will likely
be ‘inappropriate.' The divergence of observed and producer prices
will lead to an inefficient allocation of resources (or allocative
inefficiency). This research will address the price divergence
issue and decompose measured productivity change into a component
arising from distortions due to government intervention in agricultural
markets and components measuring technical change and scale economies.
Contact Eldon Ball about
this research.
Productivity and International Competitiveness of
European Union and United States Agriculture
This study examines the role of variations in exchange
rates, changes in relative prices of factors of production, and
the relative growth of total factor productivity in explaining
the competitiveness of European Union and United States agriculture.
At the outset it is necessary to define a measure of competitiveness.
Our measure of competitiveness is the price of industry output
in the member countries relative to the price in the United States.
Relative output prices are summarized by means of purchasing power
parities. To account for changes in competitiveness, we calculate
purchasing power parities for inputs employed in agriculture—capital,
land, labor, and materials. The final step in accounting for competitiveness
is to measure relative levels of productivity. For this purpose
we employ a multilateral model of production. This model allows
us to express the price of output in each country as a function
of prices of inputs and the level of productivity in that country.
We account for differences in relative prices of output among countries
by allowing input prices and levels of productivity to differ across
countries. We find that the main factor behind changes in international
competitiveness is the gap in relative productivity levels. However,
changes in international competitiveness over time are strongly
influenced by variations in exchange rates through their impact
on relative input prices. Contact Eldon
Ball about this research.
Quality-Adjusted Price and Quantity Indices for Pesticides
Revisited
The use of quality-adjusted pesticide price and quantity indices
is critical in calculating agricultural productivity and in estimating
aggregate supply models. Indices need to be adjusted
for quality differences across pesticides and years because there
are important inherent differences in pesticide characteristics
that prevent the direct comparison of observed prices of pesticides
over time and across regions. We develop quality-adjusted
measures by estimating hedonic pesticide price functions; hedonic
functions express the price of a good or service as a function
of the quantities of the characteristics it embodiesin this
case, pesticide potency, hazardous characteristics, and persistence.
When we control for such pesticide characteristics in a hedonic
price function, we can then derive quality-adjusted pesticide price
indices for States and major crops 1960-2005, updating a previous
database that ended in 1999. Contact Richard
Nehring about this research.
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Ball, V. Eldon, William Lindamood,
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Ball, V. Eldon, Jean-Pierre Butault, Carlos San Juan Mesonada,
and Ricardo Mora. "Productivity and International Competitiveness
of European Union and United States Agriculture, 1973-2002," Unpublished
manuscript, 2007.
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Nehring. "Convergence
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