October 26, 2007
Oppedahl on the agriculture R&D conference
By Guest Blogger David Oppedahl
Have you ever wondered how the U.S. can produce so much food with relatively few farmers? On September 24, 2007, at the Federal Reserve Bank of Chicago you could have learned some of the reasons behind the cornucopia of output from U.S. agriculture at our conference The Role of R&D in Agriculture and Related Industries: Today and Tomorrow. The conference explored the role of research and development (R&D) in agriculture, biotechnology, and the food industry, focusing on policies that promote industry growth and rural development. This conference brought together those interested in the R&D issues facing agriculture and related sectors of industry, particularly biofuels and food manufacturing.
The goals of the conference were to examine agricultural R&D from a midwestern perspective, explore the implications of R&D for industry growth, and discuss the influence of government R&D policies on industries and rural development. The sessions of the conference covered the following topics: 1) agriculture R&D and funding, 2) biotechnology and food R&D, 3) biofuels R&D, and 4) a policy discussion about the best ways to promote agriculture-related R&D. Next I’ll highlight a few of the presentations.
William Testa, vice president and director of regional programs at the Chicago Fed, kicked off the day with opening remarks that emphasized the role Chicago has played in the development of agriculture in the Midwest. “Almost from its inception, Chicago has been the nexus and commercial center for a broader region whose wealth emanates from production agriculture,” Testa said. Yet, shifts in agricultural labor due to increased productivity have affected the region’s economy. Testa noted that fewer production jobs in agriculture and related industries have led to struggles in rural development, though agriculture remains a key sector. “At heart, production agriculture must remain in the Midwest where land, climate, and transportation infrastructure are superior,” Testa stated. Moreover, R&D activities have played a key role in shoring up the District economy and offer hope for a bright future. The web of R&D efforts in the Midwest is likely to grow, creating more opportunities for the region through better products and new technologies. Testa concluded, “I am optimistic here today that the dissolution between research lab and factory and farm that has taken place in other regions and in other industries is not our Midwest region’s destiny.”
My presentation opened the first session and emphasized the link between the amazing productivity in agriculture during the last 60 years and agricultural research. Recent data from the U.S. Department of Agriculture demonstrated that, while using fewer inputs than in 1948, the agricultural sector in the U.S. produced more than 2.5 times as much output in 2004 as it did over a half century ago. Of course, the use of some inputs, like fertilizers, has increased. However, the contraction in farm labor more than offset these increases. Yet, there was a shift in the source of agricultural productivity during this period. In the 1948–1980 period, almost three-quarters derived from an increase in inputs per worker, whereas in the 1981–2004 period, two-thirds derived from growth in total factor productivity (TFP), which reflects changes in technology and other factors rather than labor-saving productivity alone. Government policies fostering agricultural research have promoted the long-term health of agriculture via TFP. According to Fuglie and Heisey, “There is a consensus that the payoff from the government’s investment in agricultural research has been high.” There are even greater benefits to the public from agricultural research when one considers the social returns from private research as well as public funding.
Orion Samuelson, agribusiness director at WGN Radio Chicago since 1960, presented the keynote luncheon speech, expanding on this theme of the changes in agriculture due to government policies. He passed along a few of his many experiences related to the changes in agriculture during his association with the industry. Orion touted rural electrification as the single factor that changed agriculture the most in the twentieth century; farm life was transformed by a reliable supply of electricity. He also said that research played a vital role in agriculture’s growth and that research funding should be expanded to sustain the industry’s growth. An example of the key role of research is the ongoing development of drought-resistant crop genetics via biotechnology, which will contribute to the record corn crop this year. Samuelson contended that we’re just seeing the beginning of biotechnology’s impact across the industry. Moreover, he predicted that U.S. agriculture would rise to the challenge of helping feed the world through agricultural R&D, just as it has over past decades.
The final session explored policies that would strengthen agricultural R&D in the U.S. Jeffrey D. Armstrong, dean of the College of Agriculture and Natural Resources at Michigan State University, discussed CREATE-21, a set of proposals to integrate the U.S. Department of Agriculture’s research, extension, and teaching functions and double U.S. funding of agricultural research to about $5.4 billion per year over a seven-year period. Moreover, the funding would become more competitive under CREATE-21, making research better suited to the changing needs of agriculture.
Lastly, Robert L. Thompson, Gardner Chair in Agricultural Policy at the University of Illinois at Urbana–Champaign, looked at the resource constraints facing world agriculture, even as world food demand could double by 2050. In this scenario, research investment is particularly essential for the future as well as it has been in the past. Also, the Midwest may play an even larger role in feeding the world with exports because of the water and land constraints that many regions across the globe face. But increased funding of R&D is needed to meet the rising global demand for food products. Indeed, R&D plays a key role in achieving greater output and in enhancing productivity, which will allow for more exports. Moreover, a better mix of funding with enhanced government participation would benefit agriculture and the world because private sector investment alone will not reach the socially optimal level in all areas of research.
The other presentations at the conference were excellent as well. Most of the presentations from the conference are now available online, so be sure to check them out to learn more about R&D in the agricultural, food, and biofuel sectors. (A special Chicago Fed Letter summarizing the conference presentations will come out in the near future.)
October 16, 2007
Mid-year jobs report
By Guest Blogger Vanessa Haleco-Meyer, Associate Economist
Economists and policymakers often pay close attention to payroll job numbers because they are among the most current and wide-ranging economic indicators available for states and regions. However, payroll job numbers should be viewed with caution as they are subject to revision; that is, an annual revision is undertaken during early March for the data of the previous five years.
The Midwest—comprising Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio, and Wisconsin—saw moderate year-over-year employment growth in the first half of 2007. The Midwest had 0.2% nonfarm employment growth, while the U.S. had a 1.5% gain (see the figure below). Each state in the Midwest posted growth in jobs, except for Michigan and Ohio.
Most major industry sectors contributed to the Midwest’s sluggish employment growth (see the table below). The region’s manufacturing employment decreased, in large part due to the auto and housing industries’ troubles. Midwest employment expanded in the professional, education and health, and leisure and hospitality sectors, though at a slower pace than in the nation.
Rising by at least 1 percent, the professional, education and health, and leisure and hospitality industries led employment growth in the region. Because these sectors make up a good portion of the Midwest's industry mix (see the table below), they offset declines or tepid growth in other industries.
The Finance Industry
The finance industry also helped sustain overall job growth during the first half of this year. Going forward, this sector’s performance could falter as financial firms react to changing credit conditions. In fact, some lenders have reportedly laid off staff in Chicago, Detroit, and Carmel, IN.
The Auto Industry
Indiana, Michigan, Ohio, and Wisconsin all reported declines in manufacturing; those states were heavily weighed down by the declining production activity in the automotive industry. According to the Chicago Fed Midwest Manufacturing Index, auto production in the Seventh District, which comprises all of Iowa and most of Illinois, Indiana, Michigan, and Wisconsin, declined 2% from the first half of 2006. Light vehicle sales and production in the U.S. decreased during the first half of the year (compared with last year) in part because of the ongoing struggles of the Detroit Three automakers (Chrysler LLC, Ford Motor Co., and General Motors Corp.). Payroll auto employment in Michigan reported an 11% drop year-over-year for the first half of 2007. Wisconsin also reported an 11% drop; however, the auto industry makes up a very small share of Wisconsin’s industry mix. Indiana’s auto employment reported a drop of 4%, and Ohio’s decreased by 7%. Automotive employment declines are not confined to production workers. Last month (on September 6), Volkswagen announced its plan to move its headquarters to Herndon, VA, which would shift 800 jobs away from the Detroit area.
Having discussed some of the major industries across the region, I now turn to the employment performance and outlook for the individual states.
With strong growth in the professional, financial, education and health, and leisure and hospitality industries, Illinois reported about a 1 percent rise in nonfarm employment for the first half of this year compared with last year. These industries’ growth in jobs outweighed small contractions in manufacturing and government employment.
Aside from the drop in manufacturing employment (and essentially no change in the number of jobs in the natural resources and mining sector), Indiana experienced growth in all other sectors. Based on the employment growth in most of its industries, Indiana reported a small increase in total nonfarm employment. Interestingly, the sector with the largest year-over-year growth was construction, even though housing starts and permits both decreased in the first half of the year. Recently, the relationship between housing construction activity and construction employment has remained murky in Indiana and elsewhere. Construction employment has held up better than some might have anticipated.
Iowa reported above a 1% growth in total employment partly due to its strong professional and financial industries. For the first half of the year, Iowa also experienced greater than 1% growth in its construction, information, education and health, and leisure and hospitality industries. Similar to Indiana, Iowa recorded a significant increase in construction jobs, even as home building slowed.
Michigan reported a drop of 1% in nonfarm employment, which is in line with the rate of decline it has experienced since the beginning of 2006. Job losses were widespread across major industry sectors, with the exception of solid growth in the education and health sector as well as the leisure and hospitality sector.
Minnesota reported a 1% growth in total employment largely because of its expansions in the professional and financial industries. While Minnesota saw some declines greater than 1% in natural resources and mining as well as in construction, these industries form only a small portion of the state’s industry mix. These declines were more than offset by the strength in the professional and financial sectors, as well as by the reported 3% gain in education and health and the smaller 1% gain in the trade, transportation, and utilities sector.
Ohio’s overall nonfarm employment experienced a dip. However, this decline was partly offset by the strong growth in its professional as well as its education and health industry. The trade, transportation, and utilities sector also posted a small gain.
Overall, Wisconsin reported a small increase in total nonfarm employment. Other than a decrease in manufacturing and construction, Wisconsin’s other industries expanded in the first half of the year. Manufacturing excluding the auto industry reported a decline of 1.7%.
As measured by payroll employment growth, the Midwest economy continues to expand more slowly than the nation. A general pattern of increasing weakness is evident in contrasting the westward states of Iowa, Minnesota, Illinois, and Wisconsin with Michigan, Ohio, and Indiana in the east (see the figure above). Automotive restructuring there, along with flat nationwide sales in light vehicles, continues to account for a lagging pace of payroll employment.