Testimony before
the Senate Committee on Agriculture, Nutrition and Forestry
Hearing on Agricultural Research
March 18, 1997
Improved Research Accountability for Public Goods
David E. Ervin, Ph.D.
Director, Policy Studies Program
Henry A. Wallace Institute for Alternative Agriculture
Chairman Lugar and other members, thank you for the opportunity to testify on the future direction of federal agricultural research policy. I applaud you and the Committee for raising tough questions and stimulating constructive discussion. My remarks focus on three areas from the questions: (1) accountability and priority setting; (2) structure and funding mechanisms for public goods, and; (3) the vital role of the Extension Service in delivering public goods.
Principles and Observations
My testimony is guided by the following underlying principles and observations:
1. Public research can and must provide the foundation for building competitive farming and ranching systems that protect environmental resources and sustain the quality of life in rural communities. A growing body of science and on-the-ground experience confirm that such integrated systems are technically feasible and profitable in many instances, with the potential for even wider application under more R&D. Proven technologies are available to build the systems -- integrated pest management, conservation tillage, rotational grazing, cover crops, organic production, and soil nutrient testing to mention a few.
2. Public research allocates relatively few resources to the development of sustainable agriculture components and systems. Estimates vary from below 10 percent up to 35 percent depending upon the criteria used. Unfortunately, present research accountability systems simply cannot produce a definitive estimate, a telling comment. This minority of funding contrasts sharply with Congress' stated purpose in FACTA that the entire research title emphasize sustainable agriculture. The small amount of funding is unlikely to assure a stream of technologies capable of sustaining agricultural production and environmental quality for future generations.
3. Public research and education should lead the development and adoption of sustainable agriculture because many benefits are public goods of value to farmers, ranchers, consumers, conservationists, agribusinesses across the country, and to future generations. For example Chairman Lugar, basic knowledge to improve soil quality will not only enhance Indiana farmers' long-run productivity and profits, but also benefit the off-farm public by sequestering carbon and reducing water pollution from fertilizer and pesticide leaching and runoff. Yet, available data show that only about 12 percent of public agricultural research funds go for natural resource management purposes, and the portion for environmental purposes is unknown.
Recommendations
Improvements in the public agricultural research and education system are possible, indeed necessary, to ensure agriculture's long-run competitiveness, enhance its environmental performance, and improve rural community well being. We respectfully recommend three actions:
Dedicate specific funding to build an improved public agricultural research accountability system led by USDA with full stakeholder participation. The federal agricultural research system should make scientific estimates of the physical, biological, economic and social effects of its research projects. Congress needs to set aside increased funds specifically for accountability and establish firm delivery dates.
Target increased research funding for environmental and other public goods. We support USDA's FY 1998 budget recommendations for increased funding for natural resource and environmental research programs. We recommend further earmarked increases in research activities that interweave production, environmental and rural development components.
Establish a national commission on extension to assess innovative reforms across the country that can help safeguard the sustainability of agriculture. The extension system holds enormous potential to accelerate the provision of public goods from sustainable agriculture. We recommend a national commission of extension professionals and customers to survey promising developments and identify effective strategies for spreading the innovations.
Before examining the rationales that lead to these recommendations, it's useful to review the sea change of policies that set the stage for the next generation of agricultural research, extension and education.
Agricultural Research Enters a Brave New Policy World
This is an opportune time to consider the agriculture research system's structure, funding mechanisms, coordination and priority setting, and accountability. The agricultural industry confronts a radically different policy world from just five years ago, one with dramatically reduced government interference in production and marketing decisions thanks to the 1996 Farm Bill, one with an expected doubling in food demand over the next thirty years, one with expanding foreign markets thanks to regional and global trade pacts, one of federal budget austerity into the foreseeable future, yet one in which the public desires more from agriculture than plentiful, low cost food and fiber.
Issues such as improved water quality, food safety, protection of biological diversity, and preservation of rural farm landscapes regularly enter local, state and federal policy discussions about agriculture. Surveys show repeatedly that a clear majority of the public supports existing or higher environmental performance by the industry. Results of the 1996 elections confirmed that the vast majority of the public does not want to rollback environmental standards and improvements. However, they do want to find less expensive and less intrusive ways to sustain and advance them. A team of leading scientists recently identified new technology for protecting the environment and natural resources as one of the top 10 challenges facing industry over the next decade (Batelle). We believe that federal and state agricultural research and education systems should play a lead role in assisting farmers and ranchers to deliver these public goods at low cost and in producer-friendly ways, but they have been under-utilized.
Thus, the need for increased agricultural research and education is stronger than ever. But the purposes have broadened beyond ensuring productivity advances. The public and private research systems are introducing new technologies at a dizzying pace. Just a few weeks ago, we crossed the threshold of creating an exact genetic duplicate of an animal that spawned intense ethical and other issues. Clearly we have the capacity to advance science and technologies in ways that were hard to fathom just a decade ago. It is not clear how these technological advances will contribute to the overall public objectives for the agricultural system. The incentives that drive technology innovation and adoption processes omit key public values. Therefore, important questions arise about the priorities guiding our public agricultural research system, its accountability, and the degree to which it focuses on and delivers public goods using innovative research and educational outreach.
Insufficient Accountability and Priority Setting
Every good government program starts with a clear conception of a priority social problem. Then it defines the role the public sector can best play in the solution, one that will not duplicate or diminish private sector initiatives but complement them. Next, it structures necessary public institutions that focus tightly on the root causes of the problem, and that are guided by effective leaders with adequate funding. Finally, it uses regular evaluation to adapt to changing conditions and to ensure accountability to the taxpayers. Accountability processes also feed back into priority setting for the next generation of programs. Thus, the two are interlinked.
Major assessments of priority setting and accountability by the public agricultural research and education systems have not drawn favorable conclusions (GAO; NRC; OTA, 1995a). The recent National Research Council report highlighted the need for heightened accountability and quality as one of four principal areas for change. We concur with those findings, especially concerning research and education on sustainable agriculture. There are some encouraging signs of progress in remedying the deficiencies with innovative efforts in some states and a strategic planning process underway within USDA. We believe that science and research administrative practices are available to provide a better accounting to taxpayers and to improve priority setting.
As the brave new policy world continues to unfold, new criteria for success in agricultural research and education need to be added. In addition to producing food and fiber, making progress on nettlesome environmental problems such as water pollution from fertilizer and pesticide residues, improving nutrition and ensuring food safety, protecting biological diversity, and sustaining strong rural communities have entered agricultural policy. Many goals represent public goods that transcend market channels and therefore will not be captured by market rate of return studies. Their character complicates priority setting and accountability but need not stymie them.
The remarkable accomplishments of the Morrill, Hatch and Smith-Lever Acts in building the production capacity of U.S. agriculture have been the traditional focus of accountability studies. Study after study has concluded that the market returns to public agricultural research for the increased food and fiber exceeded the return for comparable research investments elsewhere in the economy. Early studies estimated returns as high as 100 percent or more. USDA's Economic Research Service has estimated a "likely" value of 35 percent (Fuglie, et al). Others arrive at a conservative figure of about 20-25 percent (Alston, Norton and Pardey). Based upon the high estimates, eminent economists studying this issue argue that the U.S. has underinvested in public agricultural research. If the high returns are achievable in the future, the public will continue to underinvest if research expenditures do not rise.
Legitimate arguments have been made that the estimated rates of return omit important effects, some that would lower it and some that would raise it (Fuglie, et al.). Examples include health, environmental, and safety effects of new technologies. As the agricultural technology revolution expands exponentially, the omitted effects take on more importance. The omissions are of particular relevance to sustainable agriculture because one of its central goals is to use technologies that increase public goods and reduce negative side effects. There has been virtually no quantitative analysis to correct for the omissions, likely because they occur mostly outside markets. Public research and education agencies do not comprehensively monitor them. Their absence cannot be supported on scientific grounds. A growing body of science exists to measure most of the neglected impacts and place values on them.
Economists have a variety of methods to estimate the monetary value of nonmarket public goods. For example, reducing the likelihood of agricultural water pollution can be valued as the saved expense in finding other drinking water supplies or avoiding flood damages. Improved water quality may also lead to increased recreation that can be measured through surveys of fisherman, swimmers and other water enthusiasts. Even surveys of potential users of future environmental benefits, such as preserving agricultural landscapes, can give credible estimates of social benefits under carefully designed surveys. Conversely, if agricultural R&D degrades any of the public goods, the same methods should be applied to estimate the losses that lower the rate of return. Incomplete science may rule out a direct monetary measure for certain public goods. In some cases, the benefits of research may be assessed as the savings afforded by less expensive measures. As an example, research discoveries may allow farmers to meet public environmental standards, such as maximum contaminant levels of nitrates and pesticides in well water, at lower expense. The savings, while not the direct value of the improved environmental quality, are a bona fide benefit of meeting the social environmental goal.
For other cases, the science may be so immature that measuring monetary effects would be inappropriate, such as achieving greater biodiversity. In still other cases, it may be impossible to express the benefits in an economic measure, such as maintaining equal opportunity to certain public services for rural residents or bequeathing a healthy resource base to our children. Nevertheless, the effects should be described in the most credible quantitative or qualitative fashion so that policy makers can consider them side-by-side with the monetary benefits.
Some experiments are underway in various states to systematically track this broader list, such as Oregon State University's Oregon Invests system (Dutson and Evans). That system, which I worked on in its early stages, brings environmental and other social effects into research reporting along with economic impacts. The Oregon effort is building a comprehensive information base to help research administrators conduct public outreach. It is not an evaluation of the research program. Nonetheless, it is systematically examining the full set of economic, environmental and other social effects of research, and will be applied to extension shortly. The enormous interest in the system around the country likely reflects the need for greater accountability of the full range of research and extension impacts. More work is necessary to validate estimated impacts and to value nonmarket effects. Rigorously incorporating the full set of research benefits and costs will move us to a criterion of maximizing the social (market and nonmarket) rate of return to federal funds. Using that accountability criterion will add insight into contributions to or detractions from achieving a sustainable agriculture.
Increased effort at measuring public goods will direct more attention to them in research priority setting (Smith). Under current accounting systems, they are often completely ignored or referred to in vague qualitative fashion because of incomplete data. Setting priorities in a public research system and delivering on them is akin to herding cats. For those not familiar with the herding instincts of cats, it's not an easy job. I speak from experience, having administered research programs within USDA and at a land grant university. The culture of the research process, imbued with images of lone scientists struggling to unlock secrets that will transform society, reinforces researcher autonomy and resists priority setting whether through collective or autocratic processes.
There are advantages and disadvantages to this culture. It has obviously served us well in increasing crop and livestock production. Nonetheless, with the expanding set of criteria for agricultural research and the unrelenting budget pressure likely ruling out increases in funding, more effort at prioritizing seems prudent. The Department is currently conducting an extensive strategic planning process that should yield ideas for what research areas to emphasize and de-emphasize. And they are gathering information from broad groups of stakeholders to learn about the needs of potential customers. Despite these positive steps, it is not clear that all public goods, many that come from sustainable agriculture systems, will be adequately considered in that process because accountability systems have neglected their status. The science exists to do better. The outcomes deserve scrutiny to ensure that a social rate of return criterion is used. The Fund for Rural America has been structured to address many public good issues and could provide insights for the other research and education programs. Without an improved accountability system, improvements in priority setting and the structure and funding to attack those priorities will be hamstrung.
RECOMMENDATION ON ACCOUNTABILITY Congress should require the estimation of physical, biological, economic and social effects of federally-funded agricultural research. Such a requirement would be an essential step in Congress' efforts to improve accountability to the taxpayers. The USDA research agencies could lead this initiative, and the National Agricultural Research, Extension, Education and Extension Advisory Board could facilitate full stakeholder participation. To ensure its development, however, Congress needs to set aside increased funds specifically for research accountability, establish periodic progress reports, and set firm delivery dates.
Improved Structure and Funding for Public Goods
It goes without saying that public research and education should emphasize activities that provide public goods. To do otherwise invites interference with the private sector that spawns inefficiency, and misses critical social needs that will not be met by private efforts. As alluded to above, public goods have one or two traits that lead to undersupply by the private sector. Either, the goods give simultaneous benefits to many people (nonrivalry) or it is technically, economically or socially infeasible to control access to them once provided (nonexclusive). Classic examples are basic knowledge that improves long-term production conditions, food safety and nutrition for all producers and consumers, and clean air. A central goal of sustainable agricultural systems is to provide a wide array of these public goods that carry beyond the farm boundary to rural and urban communities and to future generations.
The public good criterion raises fundamental questions about whether the current research and education system adequately delivers those products and services. As explained in the last section, administrators lack information on their status and value because of poor accounting systems. USDA issues a very useful annual report that tracks changes in natural resource and environmental conditions related to agriculture, but these shifts are due both to private actions and to public programs (USDA, ERS, 1996). Building the accountability system is thus a critical first step.
Research administrators often invoke the maxim "The public sector must do basic science because it provides broad public benefits that the private sector cannot capture." But we know that much applied research and education share those public qualities. The impressive rates of return to public agricultural research that boosted output over the 20th century, much of it applied, support that argument. Now, there are new applied research and education challenges for agriculture. Adapting production management systems in Midwestern states such as Minnesota, Iowa, Illinois, Missouri, Indiana and Iowa to change the quality of water emptying into the Mississippi River/Gulf of Mexico system is an environmental illustration.
There are sound reasons to expect that public research and education programs will neglect natural resource and environmental public goods in agriculture. A major theory of the forces driving R&D argues that innovations are induced to conserve expensive inputs (Hayami and Ruttan). For inputs that have market prices such as land, machinery and labor, the theory tells us that as their prices rise, R&D innovations will emerge to save expense by substituting cheaper inputs or improved management. This incentive to innovate works directly in private R&D and indirectly through user/customer requests for government R&D. We witnessed this process in action when industry rushed to build reduced tillage technology in the late 1970s because it saved energy, labor and machinery expenses. Government and university work followed course. There is sound evidence to support this theory for a number of such land and labor saving technologies.
However, the theory also tells us that "induced innovations" will not effectively conserve natural resource and environmental public goods because they do not have market prices (Ervin and Schmitz). Unless government programs require farmers and ranchers to meet specific environmental performance standards, there is little or no incentive to develop cheaper ways of meeting the targets. Other industries have this incentive for air, water and land pollution regulations for example, but agriculture has relatively few environmental regulations. The majority of conservation and environmental programs for agriculture use voluntary mechanisms aided by financial assistance. Pesticide regulations are a major exception. Those regulations have induced some new compounds that carry less environmental risk (Osteen and Szmedra). More efficient regulatory schemes accompanied by increased R&D could stimulate further innovations and reduce long-run producer and environmental costs.
Complicating matters even further, the major conservation and environmental programs for agriculture tie financial assistance to approved technologies, such as terraces and land retirement. Such a process essentially picks "technology winners" and does not stimulate innovations that could save public, farmer and environmental costs. This type of government-directed environmental program is at odds with political trends favoring more private initiative. Moreover, it runs counter to the latest thinking in environmental management: Use market mechanisms to lower short-run and long-term costs of meeting environmental standards. As an example of this thinking, over 2000 economists including eight Nobel laureates recently endorsed carbon tax and trading schemes to counter climate change effects. Applying market-based mechanisms to agriculture poses more complexity because of the nature of nonpoint pollution problems, such as diffuse erosion runoff, but the benefits to producers, consumers, the environment and future generations may be large.
What does all of this theorizing imply for agricultural research and technology development? It tells us that we are likely on the wrong R&D path, one that does not provide enough natural resource and environmental public goods or does so at too high a cost. Only through good luck or foresighted public planning might we expect the current set of production technologies to reflect those public good values. The significant negative side effects of current technologies suggest that the good luck or accurate planing did not apply. For example, scientific assessments regularly show that agriculture is a large contributor to the nation's water quality impairments.
The absence of public good values in the R&D process has likely led to underinvestment in technologies that promote conservation and environmental protection while maintaining production and profit (Ervin and Graffy). Some promising "complementary technologies" have emerged, such as conservation tillage, integrated pest management, soil nutrient testing, organic production, and rotational grazing, but no doubt would have developed at a much faster rate with greater public R&D (OTA, 1995b). I should emphasize that the conclusion holds equally for R&D that would supply positive public goods, such as production systems that increase beneficial insects for pest control, and for R&D that would lessen environmental damages, such as cropping systems that retard polluted runoff. Until the missing values enter the R&D process to guide technology innovation, we will fail to develop pollution prevention systems. Instead, we will be dealing with pollution cleanup, much as has happened recently with manure spills from large livestock confinement operations in North Carolina and Iowa. The likely result is that future environmental compliance costs for agriculture will be higher than need be. For example, we will miss the full potential of precision farming systems to simultaneously deliver production and environmental performance.
Do we have any hard evidence to indicate that we have underinvested in these natural resource and environmental public goods? The short answer is no, but we can piece together information that suggests the public research system gives limited attention to the issues. According to 1994 Current Research Information System (CRIS) information, USDA, state agricultural experiment stations and cooperating institutions invested about $373 million annually in the "natural resource" program group out of a total public research budget of about $3.1 billion, or 12 percent. We do not know if expenditures in other research program areas go for natural resource and environmental public good purposes. The existing accounting system has not provided reliable data upon which to make credible estimates of the contributions of public agricultural research to environmental and other public goods. After reviewing available data, Miranowski concludes that current public investment in research contributing to agricultural sustainability is likely underfunded. We can and should develop more inclusive estimates using CRIS data.
What about public expenditures for sustainable agriculture research and education programs designed to provide many of these public goods? Congress established the Sustainable Agriculture Research and Education (SARE) Program to address unmet needs in this area. Its $11 million funding is less than 1 percent of federal agricultural research, education and extension budget, but that does not cover work outside SARE that may contribute to sustainable agriculture. One assessment has attempted to categorize all public research projects and resources using criteria from FACTA's sustainable agriculture definition and a rudimentary ranking system (Bird). Federal and state agricultural scientists were asked to rate projects during 1992, 1993, and 1994. Findings showed a very small proportion of the projects, about 5 percent, fell in the sustainable agriculture systems category, and about 30 percent were classified as related to the development of a sustainable agriculture component. A difficulty with this and other rating exercises is how to classify basic research that may or may not directly contribute to sustainable agriculture objectives. Again, the current research accounting system falls short. A separate study investigated how public agricultural research contributed to organic agriculture production systems (OFRF). Their findings showed less than 1 percent of projects made significant contributions to organic agriculture.
Even if precisely categorized, the percent of projects or budget expenditures do not reveal whether we are investing too little or too much in natural resource and environmental public goods. More sophisticated tests are necessary to show if and how much R&D investments respond to shifts in natural resource and environmental values over time. The missing market prices and values on these public goods will complicate such analyses. That does not mean that we should delay doing a better job tracking the natural resource and environmental projects and expenditures, and estimating economic values whenever possible to give the policy makers the best science has to offer. In the end, the research allocation remains a public policy judgment by the Congress.
RECOMMENDATION ON PUBLIC GOODS I feel the conceptual argument that missing natural resource and environmental prices leads to underinvestment in related R&D is strong. Until more definitive analyses are completed, I think the Congress and Administration should favor more public research and education for these areas. In that vein, it was encouraging to see Congress approve the Fund for Rural America that has a major focus on these questions. Also, the Clinton Administration's recommended 1998 budget increase for natural resource and environmental issues in the National Research Initiative and the increase for integrated pest management are to be applauded. Still, my judgment is that we are investing far short of the optimum. Consider for example that we may spend $20 billion to retire up to 35 million acres of farmland for the next 10 years, nearly 6 times more than for public research on natural resources management if current funding levels hold. Studies of previous land retirement schemes show that most lands return to production after the payments expire. Thus the benefits are short-lived, unlike R&D that develops new integrated systems that sustain production and environmental resources, and benefit rural communities. Frankly, until there are incentives or rules to count the public good benefits and reward their provision by the public and private research systems, they will not be adequately supplied.
Create a National Commission on Agriculture Extension
Let me turn now to federal policy recommendations to strengthen cooperative extension education, specifically regarding sustainable agriculture. The recent National Research Council report made several recommendations on extension that deserve serious consideration. We believe that a national commission of extension professionals and customers could play a timely and pivotal role in identifying effective strategies to help implement those recommendations and others that will safeguard the sustainability of agriculture. We also think the extension commission would complement the activities of the 21st Century Commission that Congress established in the 1996 farm bill.
Cooperative extension was a full partner with public research in helping U.S. agriculture achieve the dramatic production advances of this century. Studies show that the extension system earned returns in the 20+ percent range (Fuglie, et al). One of its principal roles was to accelerate the adoption of new scientific discoveries that would boost production and profit. The rationale was that such public goods should be equally available to all in the farming community.
Like the whole agricultural system, cooperative extension now faces a vastly changed policy world with a broader set of public good issues. The evolution of those issues has pushed and pulled extension over the past two decades to the point that a central mission is not discernible in many areas. Its relationship with research has become strained in many states. That is most unfortunate because we feel that the extension system has enormous potential to assist U.S. agriculture in meeting the goals of a sustainable agriculture that Congress laid out in FACTA, and the Secretary has recently endorsed.
For years now, we and other like-minded organizations have felt that extension, as an organization, was reluctant to help farmers understand and adopt potentially sustainable approaches. The unpopularity of the concept in the conventional agriculture community was too powerful a force for extension to ignore. We supported the addition of Chapter 3 of the SARE program in the 1990 farm bill as a way to stimulate extension interest and the ability to teach sustainable agriculture. Chapter 3 has had a positive impact, even though it may look a little like a "stick" added belatedly to provisions supporting sustainable agriculture research.
Our thinking has changed in the past year. The reason is that we are hearing about, and seeing, extension agents who are genuinely interested in the sustainability of agriculture, who are hard at work learning how to teach it, and who are making a difference. We have met dedicated agents and, yes, extension administrators who want to understand the unforeseen, adverse side effects of conventional farming and how to help farmers wisely consider alternatives. They do not worry about being criticized by traditionalists. They are taking risks.
Therefore, we think it's time to stop scolding extension for dragging its feet and to reward those agents and their leaders who demonstrate the kind of curiosity and commitment that will help American agriculture move down a more sustainable path.
There are hundreds of examples around the country but let me cite a couple from Oregon that I am familiar with. Clark Seavert and colleagues have developed an innovative program titled "Integrated Fruit Production" to help fruit growers reduce pesticide use (Seavert, et al ). It's too soon to tell how successful the program will be, but one early finding is a dramatic improvement in biological control impacts. John Luna at Oregon State University is collaborating with colleagues to hold a cover crops workshop to help producers learn of their soil improvement, water quality, and pest management benefits. Both activities are proceeding upon two principles of good sustainable agriculture extension programming -- integration of extension and research professionals and collaborative partnerships with farmers and ranchers.
We are not ready, nor do we think anyone is, to propose specific changes in federal extension legislation. The temptation to add new sustainable agriculture provisions to existing legislation should be resisted. All too often they reflect a natural desire to keep the peace by offering something for everyone.
Instead, we think it is an opportune time to create a national commission that explores innovative solutions to the contemporary issues affecting extension, with heavy emphasis on sustainable agriculture. The Smith-Lever Act of 1914, which established extension, was the product of such a serious undertaking. Established by President Theodore Roosevelt, it was called the Country Life Commission. It recommended that "Each state college of agriculture should be empowered to organize as soon as practicable a complete department of college extension, so managed as to reach every person on the land in its State, with both information and inspiration. . .. It should be designed to forward not only the business of agriculture, but sanitation, education, home making, and all interests of country life" ( see Rasmussen). The time has come for an undertaking of comparable boldness and depth to plot a course for sustainable agriculture extension in the next century.
RECOMMENDATION We recommend establishing a national commission on agriculture extension to help discover strategies for safeguarding the sustainability of U.S. agriculture. We need to stop and look carefully at where extension has come from, where it is now, and where it can go. Exciting institutional and programming changes are being tried in several states. The commission we recommend should look there for promising ideas and insights. Although a primary focus of its inquiry should be extension programs for sustainable agriculture, it is likely that the commission would have much to say about the future of the extension system as a whole. References
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