OESO Report USA - Innovation, Agricultural Productivity & Sustainability
The US food and agriculture sector is well-positioned to meet the diverse and increasing demand for food, feed, fuel and fibre at the national and global levels.
It is competitive and market-oriented, characterised by abundant arable and pasture land, strong and innovative farm and agri-food businesses, and a large domestic consumer market. In addition, high Total Factor Productivity (TFP), largely driven by farm consolidation and the continuous and widespread adoption of innovation, enables sustained agricultural production growth.
This report examines the extent to which various policies affect innovation, structural change, and natural resource use, and thereby help maintain current productivity growth and improve resilience to risk, while addressing important sustainability challenges, such as those related to water management and climate change. It also identifies policy areas that would need to be improved. The economic conditions and overall policy environment in the United States are supportive of investment in food and agriculture, and facilitate the adoption of productivity-enhancing technology. The regulatory environment promotes competition and facilitates adjustment and innovation. Transparency in contractual relationships along the agri-food chain could, however, be improved. US regulations on products and processes follow essentially a product-based approach and are responsive to new issues. The open trade and investment environment facilitates market-driven innovation and knowledge flows in agri-food trade, with the United States a partner in important bilateral and regional trade agreements. Well-developed financial markets and low interest rates promote investment in farm technology. General income taxation is complex, with applied rates lower than theoretical ones. At the farm household level, specific tax provisions reduce farmers' income tax and farm income variability.
Capacity for growth in the food and agriculture sector could be enhanced through improved roads and fixed broad-band infrastructure, although regional differences in access to infrastructure and services do not seem to impede the production and marketing activities of this sector. The labour market provides flexibility to adjust to changes in labour and skill needs, which in turn improves labour productivity. Nevertheless, ongoing labour shortages have reinforced interest in on-farm labour saving mechanisation technologies.
Improving secondary education in agriculture-related topics and increasing its attractiveness to a wider pool of students would also help attract young people to this sector and respond to changing skills needs. Investment in agricultural education at the tertiary level has been significant through the system of land-grant institutions, which connects research, education and advisory services to farmers. In view of the new skill sets needed for the next level of productivity growth and sustainability challenges, traditional agriculture education has expanded to include a wider range of skills and topics, such as natural resource management.
US agricultural policy allows producers to be reactive to market signals, in part due to relatively low levels of support to producers, of which only a very small share is highly production-distorting. US agriculture faces significant risks, but risk management instruments facilitate investment and changes in farm business practices. However they are not cost-efficient at addressing income problems. Moreover, they risk crowding out market-based solutions and own-farm strategies, and may lead to unsustainable choices of production and practices in the short-term. All farm-revenue approaches to risk management would reduce the need for government support by pooling individual commodity risks. Conditional support has encouraged the adoption of environmentally-friendly practices and well-designed environmental programmes have expanded. However, US agriculture faces sustainability challenges regarding water shortages, water pollution and soil erosion in several regions. Moreover, agricultural intensification takes place on land that is not enrolled in the various agri-environmental programmes, which in turn suffer from reduced participation as a result of rising commodity prices, and climate change.
The United States is the world leader in food and agricultural research and innovation. The advances they have made have strengthened US agriculture productivity and benefitted global agriculture. Research has benefited from international collaboration facilitated by researcher exchanges in US institutions, and various research agreements and partnerships. While public expenditure on agricultural research and development has declined, private expenditure has increased dramatically. This, however, is not a perfect substitute for public research given that the latter focuses at earlier stages of research and covers a broader set of social issues (e.g. environmental protection, food safety) that are generally not addressed by the private sector. Innovative policy mechanisms encourage public-private partnerships in research collaboration benefiting food and agriculture. The share of competitive project funding increased to half of all USDA funding for public and private research. Public extension services are integrated in the land-grant system togetherThe US food and agriculture sector is well-positioned to meet the diverse and increasing demand for food, feed, fuel and fibre at the national and global levels. with research and development. They have responded to a wider range of innovation needs, bringing research-driven innovations to the farm level. Growing societal and consumer concerns regarding new technologies, production practices and animal welfare will require new approaches to build public trust in the solutions that innovation may provide.