Productivity gains key to growth in food output

by Morton Sosland
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It is likely that no sector of American industry has done more to increase productivity for the benefit of the American economy and consumers than food manufacturing. That goes for productivity as measured in output per employee or per dollar of invested capital as well as in the many other ways efficiency and innovation are measured. From the time more than three centuries ago that milling of wheat into flour was first mechanized, food makers have eagerly sought and invested in systems aimed at reducing costs. This pursuit has just not continued year after year but has intensified due to ingredient market fluctuations that have added great urgency to the need for achieving every possible plant saving.

As food manufacturers aggressively look for efficiencies in how products are made and marketed, sight is often lost of the way that raw materials also have benefited hugely from similar productivity gains. Indeed, the case may be made that advances in crop, dairy, livestock and poultry production rival what the food industry alone has achieved. In a recently published book addressing this subject, titled "A Revolution Down on the Farm," its author, Paul K. Conkin, describes American agriculture as accounting for "the most important industrial revolution in American history." This assertion reflects the author’s assessment of productivity gains by American farmers.

In a recent survey of agricultural productivity, the Economic Research Service of the U.S. Department of Agriculture calls attention to a fact about agriculture that is obvious, but also is not widely appreciated, even among food manufacturers. This "fact," simply stated, is that U.S. agriculture depends entirely on productivity growth to boost production. Ever since the westward settlement in the 19th century, no new land has opened; indeed, the amount has been reduced. As a result, the only way agriculture keeps pace with supplying an expanding American population and also reaching millions in other nations is by innovation boosting output. Great success is shown by agricultural production nearly tripling between 1948 and 2004, while the land in food production and the labor force in farming decreased in size and number, respectively. If that’s not amazing enough, then consider that in this same period agricultural prices rose at less than half the rate of economy-wide prices.

While food manufacturers accurately measure the potential benefits of specific innovations to their cost of production, doing that across agriculture has required the E.R.S. to use advanced analysis. It might appear easy to assess the cost of a given outlay against the expected rise in output value, but more than this is required. The E.R.S. says its calculations allow researchers to identify the separate and distinct roles of changes in input use and productivity-improving developments. This has resulted in a measure called "total factor productivity," which is the difference between growth in output and increased use of inputs. The excellent outcome in 1948-2004 results from a narrowly positive margin for total factor productivity. It rose at an average annual 1.77%, leading to output growth of 1.74% per year. That margin for the entire 56-year period also needs to be considered in light of those years when productivity lagged, usually because of poor weather, but also due to disappointments with new technology.

On balance, the E.R.S. declares, "There can be little doubt that productivity growth has been the engine of economic growth in post-World War II agriculture." The same may be said about the food industry whose growth obviously has been fueled by the ability of agriculture to keep pace with expanding demand. All too often the food industry neglects this long-term perspective where its outlook is tied so closely to the ability of American agriculture to innovate and to embrace promising technology. This depends on uninterrupted investing in research aimed quite specifically at finding the technology and the innovations that will promise continued amazing growth in the output of American agriculture.

This article can also be found in the digital edition of Food Business News, December 9, 2008, starting on Page 7. Click here to search that archive.

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