TESTIMONY

Robert L. Thompson
President and CEO
Winrock International Institute for Agricultural Development

March 20, 1997

Mr. Chairman and Members of the Committee on Agriculture, Nutrition, and Forestry, I am pleased to testify before you this morning concerning the importance of investments in international agricultural research.. I am President and CEO of Winrock International Institute for Agricultural Development, a non-for-profit organization whose mission is to help reduce hunger and poverty by increasing agricultural productivity and rural employment while protecting the quality of the environment in low income rural areas. I appear before you in both my Winrock International capacity and as a member of the Commission on International Trade, Development, and Cooperation. In addition to my testimony, I submit for the record the conclusions and recommendations of the Commission and its report on ôThe Crucial Role of International Agricultural Research: Improving Global Food Production, Benefiting U.S. Agriculture, Enhancing the Economies of Developing Countries, and Stimulating U.S. Trade.

The United States has the world's largest and most effective agricultural research system, comprised of the USDAÆs Agricultural Research Service (ARS) and Economic Research Service (ERS), the land-grant universities, and the private sector. Numerous studies have documented the high rate of return to public investments in agricultural research. In these assessments the measured rates of return are generally in the range of 50 to 100 percent per year. This makes investments in agricultural research one of the highest payoff investments documented.

Public and private investments in agricultural research have provided productivity-enhancing, cost-reducing technologies that have kept American farmers internationally competitive. Last year U.S. farmers exported about 30 percent of everything they produced. In 1996, U.S. agriculture exported over $60 billion worth of food and agricultural products; these export earnings make a large contribution to the U.S. balance of payments and generate thousands of U.S. jobs on the farm and in associated businesses. Agricultural research has also helped provide the American public with the safest, most nutritious and lowest-cost food supply of any country in he world. The productivity increases in U.S. plant and animal production have preserved and protected millions of acres of forests and fragile lands that that would otherwise have come under cultivation. This has sustained wildlife habitat, protected biodiversity, and preserved greater carbon sequestration capacity of forests.

However, despite these impressive benefits, in most years since the late 1970s, U.S. public investments in agricultural research have stagnated or declined in real terms. While larger private sector investments in agricultural research in this period have taken up part of the slack, there are many critical research areas that will not be taken up by private investments.

With the passage of the 1996 farm bill, American farmers will have to secure more of their income from the marketplace. The U.S. market for agricultural products is mature and growing very slowly. The only outlet for the products of U.S. agriculture with rapid growth potential is the export market, and the greatest potential for growth in demand for food is in low income countries which experience broad-based economic growth that empowers millions of poor people with the wherewithal to upgrade their diets by eating more animal protein, fruits, vegetables, and edible oils. The key factors that will determine the future size of U.S. agriculture and agribusiness are the future size of the world market and the competitive position of the U.S. food and agricultural sector to capture a significant share of the growth in that market.

Future Size of the World Market

It is well recognized that the world's population is growing rapidly and that there are likely to be close to twice as many mouths to be fed before the world's population stabilizes around the middle of the next century. While sheer numbers of people create the need for more food, many millions of those yet unborn people will suffer hunger and malnutrition because they cannot afford a better diet for themselves and their families. But what is often unrecognized in discussions of the number of future mouths to be fed is that as a result of moves to privatization, a market economy, and freer international trade, broad-based rapid economic growth is occurring in many previously low income countries. As a result, global demand for food is growing much faster than population growth alone would cause. In fact, as a result of population AND income growth, world demand for food is expected to double within 30 years and may as much a triple by the middle of the next century. The key to the future size of global food demand is how many tens or hundreds of millions of poor people will experience income growth that lifts them out of hunger and enables them to eat a more nutritious diet.

As much as 70 to 80 percent of the population of most low income countries is rural, and the majority of their people who live in poverty are farmers. To achieve broad-based economic growth that lifts the maximum possible number of people out of poverty, it is necessary to start the process in agriculture where the bulk of the people are. This is virtually impossible to accomplish without increasing agricultural productivity. This often requires improved technologies and a more supportive public policy environment. Public policy in many low income countries has a strong anti-rural bias and taxes farmers heavily. Biological and physical research are needed to find technologies to increase agricultural productivity in the local agroecosystem. In many cases these are tropical areas with locally important staple foods on which the cumulative body of research is deficient to increase productivity very much. Research on public policy and the marketing system is needed to be sure that the small farmers receive sufficient incentives to adopt the new technologies that the biological and physical research provides. As agriculture gets moving and large numbers of previously low income people enjoy greater purchasing power, this stimulates growth in the nonfarm sector--to supply inputs for agriculture and other goods the family can now afford to buy. Because most low income countries have a smaller fraction of the world's arable land than of the world's population, demand for food tends to quickly outstrip the local agricultural production capacity, and the same countries become net agricultural importers. Investments in agricultural research --biological, physical, and economic-- are one of the most effective means of accelerating agricultural development in low income countries.

While it may seem counterintuitive that helping accelerate agricultural development in low income countries results in larger imports, this effect is well documented. A recent study by the International Food Policy Research Institute showed that each dollar of additional agricultural output in low income countries results in 73 cents more in total imports, of which 17 cents worth is additional agricultural imports (of which 7 cents is for grains). Previously low income countries have been the fastest growing market for U.S. agricultural exports in the last several decades, and as long as broad- based economic growth continues, the present low income countries hold the greatest potential for future market growth. As countries reach a middle-level of per capita income (broadly based), their demand shifts so that they become growth markets for higher-value products, often involving more processing. This provides a further boost to the value of their agricultural imports and the number of jobs they create in the exporting country. In addition, as their agriculture progresses, developing countries buy more imports of agricultural inputs such as farm machinery, seeds, fertilizer, and chemicals and of food processing equipment.

Unless a low income country has exportable mineral wealth, general economic growth tends not to take off unless you start the process in agriculture where the bulk of the people, especially the poor people, are. Larger investments in agricultural research are a key to setting this process in motion.

Competitive Position of American Agriculture

As long as broad-based economic growth occurs in presently low income countries, the size of the world market for agricultural products is expected to grow rapidly However, the United States is not the only potential exporter to supply this demand. A number of countries of Central Europe are well poised to export larger volumes of both crop and livestock products. While the transition from central planning to a market economy is going much more slowly in most countries of the former Soviet Union, they have the potential to significantly increase productivity and efficiency in their crop and livestock sectors. Of particular note is Ukraine, which was one of the major wheat exporters of the world as recently as 1930. While Ukrainian agriculture has underperformed relative to its potential for almost 70 years, once it completes the transition to a market economy, it is likely to once again be a large agricultural exporter. Similarly, agriculture in the southern cone of South America, particularly Argentina, has substantially underperformed relative to its potential. This region is also likely to be a much larger agricultural exporter in the future. In addition, it is likely that agricultural production will increase in both Asia and Africa, albeit more slowly than their demand grows.

If, in addition the U.S. dollar should strengthen and in a future round of multilateral trade negotiations export subsidies should be eliminated, it will be critically important for American agriculture to be concerned about ensuring its long-term competitiveness. When exporting bulk commodities, being the low cost supplier is critical. This requires research that sustains and enhances productivity while reducing the unit cost of production. As U.S. agricultural exports move up the value-added chain and become more differentiated, being the low cost supplier may be less critical, but other forms of research become important to export success. A number of other countries, particularly in Western Europe and Oceania, have much more experience in this market segment and will be formidable competitors.

If the U.S. food, agriculture, and agribusiness sectors compete favorably for the available world market, I believe that their exports that totaled $60 billion in 1996 could pass $100 billion. Continuing progress at liberalizing international agricultural trade will be necessary to achieving this potential, as will be greater public and private research in production and processing technologies and in markets and public policy.

Reduction of U.S. Support for International Agricultural Research

Beginning after World War II the United States was a major investor in building an international agricultural research system. The early investments were made by the Rockefeller Foundation, followed by the Ford Foundation. U.S. foreign aid, through the Agency for International Development (and its predecessor agencies) made a major commitment to supporting the training of agricultural scientists from low income countries, to strengthening national agricultural research institutions and colleges of agriculture and related sciences, and to developing a system of international agricultural research centers (under the so-called Consultative Group for International Agricultural Research).

U.S. farmers have been a major beneficiary from these investments in international agricultural research. For example, a recent study by the International Food Policy Research Institute documented that one-fifth of U.S. wheat acres are sown to varieties that have their genetic roots in varieties developed at the International Maize and Wheat Improvement Center in Mexico. The same study showed that the varieties sown on almost three-fourths of U.S. rice acres are descendants from varieties developed at the International Rice Research Institute in the Philippines. All of the genes that impart resistance to rust in wheat varieties grown in the U.S. came from germplasm collected in low income countries, particularly in east Africa. American agriculture has reaped returns many times larger than the public investments made in international agricultural research. The payoff has been in larger U.S. farm family income and in enhanced U.S. agricultural export competitiveness.

However, due to cuts in foreign aid appropriations and because of administrative decisions with USAID, U.S. support for the international agricultural system has dwindled. In 1987, the U.S. invested $108.5 million in national agricultural research systems; in 1996 this figure was $27.8 million, with a 50 percent drop in 1995 alone. U.S. support to the international agricultural research centers was $48.3 million in 1986, but only $22.4 million in 1996. These cuts hardly seem reasonable in light of the high payoff from these investments to American farmers and to U.S. agricultural competitiveness, not to mention their humanitarian impact on improving the lot of millions of impoverished people in low income countries. As its support falls, the United States cannot expect to exercise the same influence on the international agricultural research system as in the past. U.S. agriculture will pay a high price for this abdication of American leadership.

Support for agricultural university development in low income countries was $24.9 million in 1991; in 1996 it was $3 million. This cut is particularly regrettable in light of the important peripheral benefits these activities provided to U.S. land-grant universities which are trying to internationalize the educational experience of their American students of agriculture to better prepare them for the global industry in which they are preparing to work.

Weak U.S. Linkages to International Agricultural Research

The U.S. agricultural research and technology transfer system--involving ARS, ERS, the land-grant universities, and the private sector-- is the envy of the rest of the world. In the past before the erosion of public investments in U.S. agricultural research, many observers would have suggested that the United States was where the action was at in many, if not most, areas of agricultural research. This is no longer as true as it might have been then. Many other countries, especially in the industrialized world, observing the high rate of return on U.S. public investments in agricultural research, expanded their own national agricultural research capacities. While some others have also failed to sustain the magnitude of these investments, the fact remains that there are numerous research institutions in other countries at the cutting edge of food, agricultural, and associated natural resource sciences. American agricultural researchers have few means of support to permit them to be actively networked into these leading research institutions. In addition there are few sources of support for involving U.S.- based scientists in international agricultural research. The Collaborative Research Support Program used to provide a modest amount of support for such activity, but public support for this too has been slashed in recent years.

One reason for the weak linkages between U.S. agricultural research and the international agricultural research system is that most appropriations and the lead responsibility for the U.S. Government in international agricultural research reside in USAID, not USDA, which has lead responsibility and the appropriations to support U.S. agricultural research. As foreign aid appropriations have been cut, USAID has cut the fraction of those foreign aid dollars going to agriculture in general and to agricultural research in particular. This is also reflected in USAID's own staff reductions. Its agricultural staff dropped from 248 in 1985 to 84 in 1996. With the continuing concentration of low income country poverty in agriculture, with the important role that agricultural development must play in getting economic growth moving in low income countries, and given the high payoff to American farmers from these investments in low income countries, agricultureÆs role in U.S. foreign aid must be restored.

Conclusions

Taking these and other considerations into account, the Commission concluded that the U.S. is underinvesting in food and agricultural research not only at home but also in the global network of international agricultural research centers and national research systems in developing countries. The CommissionÆs recommended actions in this area are:

Correct for the underinvestment in the U.S. agricultural research system by increasing Federal appropriations by 3 percent per year (in real terms) over the next five years. Restore American leadership and funding in the International Agricultural Research Centers.

Improve interagency coordination of agricultural research and link the domestic components more effectively with the international components.