Transcript Slides - World KLEMS

Productivity and Growth
in U.S. Agriculture: 1948-2008
Eldon Ball and Sun Ling Wang
Economic Research Service
USDA
Prepared for Presentation at World KLEMS Conference
at Harvard University
August 19-20, 2010
The views expressed herein are those of the authors,
and not necessarily those of the U.S. Department of Agriculture.
Productivity and Growth
The growth of 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 (Kendrick
and Grossman, 1980; Jorgenson, Gollop, and
Fraumeni, 1987; Jorgenson and Gollop, 1992;
Jorgenson, Ho, and Stiroh, 2005) share this
common conclusion
1
The U.S. Department of Agriculture (USDA) has
been monitoring the industry’s productivity
performance for decades
In fact, in 1960, the USDA was the first agency
to introduce multifactor productivity
measurement into the Federal statistical
program
Today the USDA’s Economic Research Service
(ERS) routinely publishes total factor
productivity (TFP) measures from production
accounts distinguishing multiple outputs and
inputs and adjusting for quality change in each
input category
2
Indexes of productivity are constructed for each
state and the aggregate farm sector
The state series provide estimates of the growth
and relative levels of productivity
There is also an ongoing effort to provide
international comparisons of agricultural
productivity (Ball et al., 2001; 2008; 2010)
3
Methodology
The USDA constructs the following “translog”
index of total factor productivity:
(1)
where k and l are adjacent time periods, the Yi
are the output indexes, the Xj are input
indexes, the Ri are output revenue shares, and
the Wj are input cost shares
4
The subscripts k and l in (1) can be interpreted
as time periods or as states/countries
When the number (K) of states/countries
exceeds two, the application of (1) to the [K(K1)]/2 possible pairs of states yields a matrix of
bilateral comparisons that may not satisfy
transitivity
5
Caves, Christensen and Diewert (1982) proposed
the following index for bilateral comparisons:
(2)
 TFPk   Rik  Ri   Yik   Ril  Ri   Yil   w jk  w j   x jk   w jl  w j   x jl 
 ln  ~    
 ln  ~   
   
ln 
ln  ~   
ln  ~ 










 
 TFPl  i  2   Yi  i  2   Yi  j  2   x j  j  2   x jl 
where a bar indicates the arithmetic mean and a
tilde indicates the geometric mean
The use of (2) for bilateral comparisons results in
transitive multilateral comparisons that retain a
high degree of characteristicity
6
The Production Accounts:
Output
The USDA constructs both state and aggregate
farm sector accounts
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
Inputs are not limited to capital and labor, but
include intermediate inputs as well
7
Both state and aggregate models view
agriculture within their respective geographic
boundaries as a single farm
Output includes deliveries to final demand and to
intermediate demand in the non-farm sector
State output accounts include these deliveries
plus interstate shipments to intermediate farm
demand
8
An unconventional aspect of our measure of total
output is the inclusion of output of “inseparable”
secondary activities
These activities are defined as activities whose
costs cannot be observed separately from those
of the primary agricultural activity
Services relating to agricultural production (e.g.,
machine services for hire; contract feeding of
livestock) are typical of these activities
9
Translog output indexes are formed by
aggregating over agricultural goods and goods
and services from secondary activities using
revenue-share weights based on shadow prices
10
Intermediate Input
Intermediate input consists of all goods and
services used in production during the calendar
year, whether withdrawn from beginning
inventories or purchased from outside the farm
sector
In the case of the state accounts, intermediate
input also includes purchases from farms in other
states
11
Price and quantity data corresponding to
purchases of feed, seed, and livestock are
available and enter the calculation of
intermediate input
Translog indexes of energy input are constructed
by weighting the growth rates of petroleum fuels,
natural gas, and electricity by their shares in the
overall value of energy inputs
12
Pesticides and fertilizer are important
intermediate inputs, but price/consumption data
require adjustment since these inputs have
undergone significant changes in input quality
Price indexes for pesticides and fertilizer are
constructed using hedonic methods
The corresponding quantity indexes are formed
implicitly by taking the ratio of the value of each
aggregate to corresponding hedonic price index
13
Finally, price and implicit quantity indexes of
purchased services (e.g., custom machine
services; contract feeding of livestock; contract
labor services) are constructed
A translog index of total intermediate input is
constructed for each state and the aggregate
farm sector by weighting the growth rates of
each category of intermediate input by their
value shares in the overall value of intermediate
input
14
Labor
The labor accounts incorporate demographic
cross-classifications of the agricultural labor
force developed by Jorgenson, Gollop, and
Fraumeni (1987)
Hours worked and compensation per hour are
cross-classified by sex, age, education, and
employment class (employee versus selfemployed and unpaid family workers)
Self-employed and unpaid family workers are
imputed the mean wage of hired workers with
the same demographic characteristics
15
Indexes of labor input are constructed for each
state and the aggregate farm sector using
demographically cross-classified hours and
compensation data
Labor hours having higher marginal productivity
(wages) are given higher weights in the index
than hours having lower marginal productivities
This procedure explicitly adjusts state and
aggregate farm sector time series of labor input
for “quality” changes in labor hours
16
Capital
Measurement of capital input begins with
estimating the capital stock and rental price
for each asset type
Stocks of depreciable capital are the
cumulation of all past investments adjusted
for discards of worn-out assets and loss of
efficiency of assets over their service life
17
Asset discards are calculated based on an
assumed mean service life for a homogeneous
group of assets and a distribution of actual
discards around this mean service life
Efficiency loss is assumed to be a function of
age of the asset
The function relating efficiency to age of the
asset is approximated by a rectangular
hyperbola concave to the origin
18
The USDA constructs an ex ante measure of the
user cost of capital
The ex ante rate of return is calculated as the
nominal yield on investment grade corporate
bonds adjusted for expected rather than actual
price inflation
The same pattern of decline in efficiency is used
both for the capital stock and the price of capital
services so that the requirement for internal
consistency of a measure of capital input is met
19
To estimate the stock of land we construct price
and implicit quantities of land in farms
We assume that land in each county is
homogeneous, hence aggregation is at the
county level
Beginning inventories of crops and livestock are
treated as capital inputs, while net additions to
inventory during the calendar year are
considered a component of output
20
Translog indexes of capital input in each state
and the aggregate farm sector are formed by
aggregating over the various capital assets using
cost-share weights based on asset-specific rental
prices
As is the case for labor, the resulting measure of
capital input is adjusted for changes in asset
quality
21
Sources of Growth
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
that output growth relies most heavily on input
growth in forty-two of forty-seven private nonfarm business sectors, and in a more aggregate
study (Jorgenson and Gollop, 1992) in eight of
nine sectors
Agriculture turns out to be one of the few
exceptions; productivity growth dominates input
growth
22
Using equation (1), output growth equals the sum
of the contributions of labor, capital and
intermediate inputs and TFP growth
The contribution of each input equals the product
of the input’s growth rate and its respective share
in total cost
Over the full 1948-2008 period labor input
declined at a 2.6% annual rate
When weighted by its 20% cost share, the
contraction in labor contributes an average -0.51
percentage points to output growth
23
Growth of capital input (excluding land) contributed
just 0.01 percentage points to output growth
Land input declined at a -0.55% average annual
rate; its contribution to output growth averaged
-0.10 percentage points
Intermediate input’s contribution averaged a
substantial positive rate equal to 0.66% per year
The net contribution of all inputs was less than
one-tenth of one percent, leaving responsibility for
positive growth in farm sector output to
productivity growth
24
Table 1. Sources of Growth: U.S. Farm Sector (Average Annual Growth Rates)
1948-2008
1948-1953
1953-1957
1957-1960
Output growth
1960-1966 1966-19691969-19731973-19791979-19811981-19901990-20002000-20072007-2008
0.0158
0.0115
0.0100
0.0410
0.0125
0.0227
0.0270
0.0224
0.0138
0.0096
0.0178
0.0085
-0.0087
Input growth
0.0006
0.0131
0.0030
0.0049
0.0010
0.0054
0.0076
0.0146
-0.0225
-0.0123
0.0013
0.0014
-0.0660
Labor
Capital (excluding land)
Land
Inputs of farm origin
Energy
Agricultural chemicals
Purchased services
Miscellaneous
-0.0051
0.0001
-0.0010
0.0036
0.0001
0.0012
0.0017
0.0001
-0.0081
0.0054
-0.0011
0.0069
0.0014
0.0014
0.0070
0.0001
-0.0108
0.0015
-0.0017
0.0117
0.0000
0.0008
0.0020
-0.0006
-0.0083
0.0003
-0.0016
0.0083
0.0000
0.0021
0.0042
-0.0002
-0.0081
0.0008
-0.0007
0.0055
0.0006
0.0031
0.0000
-0.0001
-0.0061
0.0031
-0.0022
0.0066
0.0001
0.0046
-0.0006
-0.0001
-0.0038
0.0014
-0.0029
0.0054
-0.0001
0.0071
0.0005
0.0000
-0.0019
0.0032
0.0000
0.0057
0.0015
0.0006
0.0047
0.0006
-0.0022
0.0022
-0.0012
-0.0088
-0.0019
-0.0019
-0.0078
-0.0009
-0.0043
-0.0062
-0.0010
-0.0008
-0.0009
-0.0003
0.0008
0.0004
-0.0034
-0.0021
0.0000
0.0032
0.0004
0.0007
0.0025
0.0001
-0.0034
0.0005
-0.0008
0.0016
0.0000
0.0012
0.0022
0.0002
-0.0047
0.0005
-0.0012
-0.0203
-0.0073
-0.0200
-0.0130
0.0000
Total factor productivity
0.0152
-0.0016
0.0070
0.0361
0.0115
0.0172
0.0194
0.0078
0.0363
0.0219
0.0164
0.0071
0.0573
Sources of growth
25
Q&A
A more detailed discussion of methods and data
and complete references can be found at our
website
http://www.ers.usda.gov/Data/AgProductivity/
THANK YOU!
26