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Jolliff, G.D. 1996. New-crops R&D: Necessity for increased public investment. p. 115-118. In: J. Janick (ed.), Progress in new crops. ASHS Press, Alexandria, VA.

New-Crops R&D: Necessity for Increased Public Investment*

Gary D. Jolliff

  1. DETERMINING COSTS OF SURPLUSES
    1. Federal Outlays
    2. Lost Wealth Estimates
  2. NEW CROP SOLUTIONS
  3. CONCLUSION
  4. REFERENCES
  5. Table 1
  6. Fig. 1
Surplus production, and consequent low prices, of agricultural commodities has been a regular peacetime phenomenon in the United States for more than a century. It was a problem in the 1870s when the USDA was formed, in the 1890s when cotton producers were encouraged to diversify their cropping systems and introduce new crops (Taylor and Taylor 1952), and in 1933-1942, 1956-1973, and 1982-1995 (Fig. 1). National farm policy aimed at agricultural income stabilization was initiated in 1935 but the problem remains 60 years later despite large government outlays (Tweeten 1995) and several million farmers have been forced off the land because of insufficient economic opportunities. Peacetime cropland reduction, i.e. the cropland taken out of production by federal government programs (Crosswhite and Sandretto 1991) has trended upwards since 1933 (Fig. 1) and the absence of sufficient profitable new-crop alternatives has resulted in lost revenue opportunities from idled cropland, in addition to the costly government outlays to idle the land.

Surplus production in the twentieth century is due to a combination of rapidly increasing technology and agricultural policy. From 1918 to 1940 surpluses were a consequence of the replacement of voracious draft animals by gas guzzling farm tractors and thereafter it was exacerbated by increases in yields caused by advances in genetic improvement, pest control, plant nutrition, mechanization, and agronomic management practices developed by state and federally supported research efforts combined with price support programs that encouraged planting of traditional crops. With the biological revolution currently underway, these yield improving technologies can be expected to continue and to spread at increasing rates throughout the world. In much of Asia increases in productivity have been sopped up by rapidly increasing populations, but crop increases have not kept up with demand in parts of Africa. The expanded productive capacity in North America and Europe however has not been compensated for by equivalent population increases and, until recently, lack of financial resources in the developing world have dampened exports and in many cases exported feed grains were either donated or subsidized. New crops development, particularly industrial crops (previously called chemurgic crops) have long been proposed as a solution to this problem and tremendous advances have been made in expanding new uses of traditional crops such as soybeans and maize. Clearly, the problem has not been solved suggesting that the neglected search for alternate and new crops be reconsidered.

There are obvious reasons why the private sector does not invest in new-crops research and development. New-crops development is: (1) long term, (2) high risk, and (3) may not yield benefits to the originators. Therefore, adapters and users intentionally wait until the profit potential is more obvious and nearer term before risking research and development investments for new crops. Although these factors justify government-funded intervention in agricultural research (Alston et al. 1994; Jolliff and Snapp 1988; Jolliff 1989), there has been extreme underinvestment in new-crops research and development compared to the established agronomic crops which are frequently in surplus (Jolliff 1989). As there is no voice for new crops, federal support has languished.

As a result of underinvestment in research, potentially viable new crops have not been developed to the point of profitability to the private sector. Determining the potential payoff to justify increased public-sector investments in new-crops development is needed. The objective of this paper is to estimate federal financial outlays and lost national revenue opportunities for the 17 year period, 1978 through 1994, associated with the absence of sufficient new-crop alternatives. This study was based on the assumption that science, technology, expertise, and plant materials have existed which could have been mobilized during the past century to provide profitable new-crops for U.S. farmers as alternatives to idling cropland and overproduction of surplus crops.

DETERMINING COSTS OF SURPLUSES

The total cost of crop overproduction for the 17 year period 1978 through 1994 was the summation of the total cost of federal outlays, plus an estimate of total lost opportunity costs.

Federal Outlays

Federal outlays included (1) cash outlays from Budget Function (BF) 351, (2) value of certificates, and (3) interest. Budget Function 351 of the federal budget is a budget category which includes many aspects of federal outlays for farm income stabilization. Much of the expenditure is for surplus commodity-related programs, such as loans, subsidies, and costs of acquiring and storing commodity stockpiles. Note that some surplus-commodity-related costs, such as foreign agricultural export losses, crop improvement research funded through the Agency for International Development, and domestic donations of food are not included in Budget Function 351 and are not estimated in this analysis. Also not included are some costs to the consumer and taxpayer such as inflated domestic prices (e.g. peanuts and sugar) as a consequence of government program quotas. The data source was the USDA Office of Budget and Program Analysis.

Certificates, which are non-cash outlays, include the $8.4 billion cost of the 1984 Payment-In-Kind (PIK) Program. The data source was the USDA Office of Budget and Program Analysis.

Interest on outlays (BF 351 and Certificates) are based on 3-year U.S. Treasury Security Interest Rates (Table B-72, Economic Report of the President, February, 1995). Interest was compounded annually. Sums for each year were adjusted to 1987 dollars using the appropriate deflator (Table B-3 of the Economic Report of the President, February, 1995). Conversion of 1987 dollars to 1995 dollars was done by multiplying the 1987 dollars by the 1995 GNP Implicit Price Deflator of 1.281.

Lost Wealth Estimates

Lost wealth opportunity estimates are based on estimated revenue losses from idled croplands plus the consequent lost multiplier effect based on the economic benefit of new wealth which was not produced. Calculation of lost wealth is based on idled acreage and returns/acre data from the Food and Agricultural Policy Research Institute, Univ. of Missouri-Columbia. Idled acres for each of seven crops (wheat, corn, sorghum, barley, oats, cotton, and rice) were multiplied by the return per acre of farmers who participated in the government program for the respective crop. This is an estimate of financial opportunity for alternative crops on idled cropland.

A multiplier effect of 2.0 was used to estimate the economic benefit to the economy from new wealth which could have been generated on idled land if profitable new crops had been developed for U.S. farmers. The values for federal outlays and lost wealth for the period 1978 to 1994 are shown in Table 1.

NEW CROP SOLUTIONS

The lack of profitable alternative crops for U.S. farmers during the period 1977 through 1994 has been extremely costly to taxpayers with severe social consequences to farmers and rural areas. Total costs for the 17-year period are estimated as $728 billion in 1987 dollars, equivalent to $932 billion in 1995 dollars. Clearly, an economic evaluation of the cost of crop surpluses requires careful examination in the context of new-crops development policy. The annual federal budget for agricultural research is approximately $2 billion. Plant productivity research, an important component, is almost completely devoted to established crops, with very little funding or institutional structure committed to new-crops development.

Agricultural research is rightly touted as yielding high returns on investment. There is question however, if the calculated rates of return in the literature took into account the high costs of government programs associated with the generation of crop surpluses. Also, arguments are being made with increasing frequency that environmental and social costs of activities, such as farm programs, should be considered (Van Dieren 1995). These types of accounting could strengthen the case for federal investments in new-crops development (Jolliff 1989). Federal appropriations would need to be new-crops-specific to assure resource use in the intended area. This implies that additional institutional innovation in national farm policy--beyond the USDA Alternative Agricultural Research and Commercialization Center--may be necessary to bring about needed change (Jolliff 1989). A suggested New Crops Initiative has been suggested in CAST Issue Paper 6 (Janick et al. 1996). Advances in new-crops development may be an important way to raise the standard of living in many countries of the world.

CONCLUSION

Historical fiscal evidence of the costs of surpluses justifies increased investment in the development of profitable and sustainable new-crop alternatives for U.S. farmers. A long-term strategic national effort is needed to make maximum use of genetic diversity in crop agriculture.

REFERENCES

*Oregon Agr. Expt. Station Technical Paper No. 10,963. Sincere appreciation is extended to Steve Dewhurst and Dennis Kaplan, USDA, Office of Budget and Program Analysis for providing historical budget data; to Carmen Sandretto, USDA, ERS for providing historic cropland reduction data used in Figure 1; to Dr. Abner Womack, and Gary Adams, Food and Agriculture Policy Research Institute, University of Missouri-Columbus, Missouri for providing the historic annual data on the seven crops for acreage reduction and participant returns per acre, and for reviewing the calculations; to Dr. James Cornelius, Department of Agricultural and Resource Economics, Oregon State University, and Dr. Rueben Buse, Department of Agricultural Economics, University of Wisconsin for guidance in preparation of the research, and reviewing the calculations.
Table 1. Outlays and lost opportunities for crop agriculture, 1978-1994.

Category Billions of
1987 dollars
Federal outlay
Budget function 351 254
Certificates 37
Interest (BF 351 + Certificates) 289
Sub total 580
Lost wealth opportunities
Lost crop opportunities 74
Multiplier effect loss 74
Sub total 148
Grant total 728

Fig. 1. United States cropland acreage reduction 1933-1994. Millions of acres of cropland taken out of production (idled) by federal government programs (trend line: approximate fit to three means: 1934-1942 = 35; 1957-1972 = 47; 1983-1993 = 58). Adapted from Crosswhite and Sandretto (1991) and updated from C. Sandretto (pers. commun. 1995).

Last update August 15, 1997 aw