The economics of agricultural innovation

Throughout history and in every part of the world, innovation in agriculture has played crucial roles in economic development by increasing farm productivity, enhancing the incomes of poor farmers and making food ever-more abundant and cheaper for consumers, while reducing the demands placed on natural resource stocks. Nevertheless, governments and markets consistently fail to do enough of the right kinds of R&D (research and development)—at least if we are to believe the evidence on rates of return to research—and technological choices on farms are becoming ever-more constrained. To begin, this chapter reviews the broad landscape of the economics of innovation and technical change in agriculture and the implications for farm inputs, outputs, productivity growth, and the structure of agriculture. Following a review of investments in R&D, we broach issues associated with assessing the returns to agricultural research and the determinants of the distribution of benefits. We reflect on the role of certain modeling assumptions as they influence results in research evaluation studies and findings in political economy models seeking to account for investments in R&D. This sets the stage for a discussion of technological regulation and its implications for agricultural innovation. Whether through government intervention or the actions of influential market intermediaries, ever-tighter restrictions are being imposed on the technologies that may be used on farms and throughout the food chain. These trends are both constraining the potential for innovation on farms as well as beyond the farm gate and inducing demand for new, more acceptable technologies.