Agricultural Productivity in the United States - Productivity Growth in U.S. Agriculture

Note: Find the full citations for papers mentioned below in References. Find tables referenced below in the main file listing page.

The U.S. Department of Agriculture (USDA) has been monitoring agriculture's productivity performance for decades. In fact, in 1960, USDA became the first agency to introduce multifactor productivity measurement into the Federal statistical program. Today, the Department's Economic Research Service (ERS) routinely publishes total factor productivity (TFP) measures based on a sophisticated system of farm production accounts. USDA-ERS's TFP model is based on the transcendental logarithmic (translog) transformation frontier; annual TFP growth rates are measured using the Törnqvist-Thiel Index number approach. USDA-ERS's TFP measure relates the growth rates of multiple outputs to the cost-share weighted growth rates of labor, capital, and intermediate inputs. (see Shumway et al. (2017) and Ball et al. (2016) for more details regarding the background and a complete description of the USDA model.).

The applied USDA-ERS model is quite detailed. The changing demographic character of the agricultural workforce is used to build a quality-adjusted index of labor input. Similarly, asset-specific details underlie the measures of capital inputs. The index of land input, for example, is constructed by aggregating county-level data. Captured in the index of intermediate inputs are the contributions of feed, seed, energy, agricultural chemicals, purchased services, and other materials. Hedonic price indices are used in constructing measures of fertilizer, pesticide, and purchased contract labor services inputs.

The result is a time series of total factor productivity indices for the aggregate farm sector spanning the period 1948 to 2023 (see table 1), along with price and quantity indices for 10 outputs and 12 inputs (see table 1a). State-specific measures are available for the 1960–2015 period (see table 2).

National Agricultural Productivity

Output growth derives from growth in the use of inputs (capital, land, labor, and intermediate goods) and TFP. Input growth has been the main source of economic growth for the U.S. economy as a whole and for most sectors, but the agricultural sector seems to be an exception (Jorgenson et al. 2014).

According to ERS estimates, total farm output nearly tripled between 1948 and 2023, growing at an average annual rate of 1.52 percent. Total input use increased modestly at a annual average rate of 0.12 percent over this period. A notable reduction in inputs was seen in the 2019–2021 subperiod, at -3.35 percent per year on average (see the chart in the Summary of Recent Findings).

The composition of inputs has also changed markedly over time, shifting away from labor and land toward machinery and intermediate inputs—including energy, agricultural chemicals, purchased services, and other materials (see table 1). Over the 1948 to 2023 period, labor and land inputs declined by 76 and 28 percent, respectively, while intermediate inputs grew by 109 percent.

TFP growth measures output growth that cannot be explained by growth in inputs, such as innovations in the performance of on-farm tasks (McFadden, 2023), changes in the organization and structure of the farm sector (O’Donoghue et al. 2011; Macdonald et al. 2018), improvements in animal and crop genetics, or other embodied and disembodied technical changes. Between 1948 and 2023, farm output grew at 1.52 percent per year on average. With aggregate inputs increasing modestly at an average annual rate of 0.12 percent (including land, labor, capital, and intermediate inputs), total factor productivity—growing at 1.40 percent per year on average over 1948–2023—allowed farm output to grow 210 percent above its 1948 level.

Long-term TFP growth is driven mainly by technical change, which is fueled by research and development (R&D) investment from the public and private sectors ((Alston et al. 2009; Alston et al. 2010; Huffman & Evenson, 2006; Fuglie & Heisey 2007; Plastina & Fulginiti, 2012; and Wang et al., 2013). Long-term TFP growth can also be enhanced by public infrastructure, extension, and technology spillover from other sectors or neighboring regions (Alston et al., 2010; Huffman & Evenson, 2006; and Wang et al., 2012). Yet, in the short term, estimated agricultural TFP growth can fluctuate considerably from year to year, largely in response to transitory events (such as bad weather (Liang et al. 2017; Ortiz-Bobea et al., 2018; Wang et al. 2019) and pest outbreaks) or to changes in input use affected by macroeconomic activities or short-term policies (Wang & McPhail 2014). Eventually, TFP growth will return to its long-term trend following these temporary shocks.

Sources of Agricultural Output Growth

In addition to long-term trends, ERS also examines the sources of total factor productivity growth, output growth, and input growth—for the 1948–2023 period and 12 subperiods. The subperiods are not chosen arbitrarily, but are measured from cyclical peak to peak in aggregate economic activity (National Bureau of Economic Research, 2023). Data reported for each subperiod are average annual growth rates, so the different lengths of the subperiods do not generally affect comparisons across subperiods.

Applying the USDA model, total factor productivity growth is the difference between total output growth and total input growth.

It is noteworthy that growth in agriculture is made all the more remarkable by the dramatic contraction in labor input, a pattern that persists through every subperiod, except for 2007–2019. Over the entire period, 1948–2023, agricultural growth attributed to land and labor inputs declined at an average annual rate of -0.45 percent and -1.73 percent, respectively. On the other hand, growth attributed to durable equipment (i.e., machinery & equipment), and material inputs (e.g., pesticides, fertilizers, energy, feed and seeds) increased at an annual rate of 0.97 percent and 1.20 percent, respectively.