Economics of Research and Innovation in Agriculture Spring 2019

Venture capital (VC) investments in privately held startup companies that are intensively engaged in agricultural research and development (R&D) has increased substantially in recent years, from just tens of millions annually in the early 2000s to reportedly more than 7 billion dollars in 2017. These investments are important for several reasons. First, the magnitudes of these VC investments are no longer negligible relative to levels of estimated private sector investments in agricultural R&D, yet they have not typically been accounted for in estimates of agricultural R&D spending. Second, these investments are supporting R&D being conducted by new entrants in a number of industries that have been highly concentrated and where incumbents may have been taking relatively incremental approaches to R&D strategy. Third, R&D by technology based startups represent an important channel for diffusion of results from public sector agricultural research, in both developed and developing countries. This paper describes recent trends in agricultural technology startup companies and the VC investments made in them. This paper also seeks to answer the question of what might account for the upturn in VC investment in agricultural technology startups in recent years. To do so, Graff and Zilberman construct a dataset of more than 4,500 startups, located in 125 countries. For a subset of these, the researchers have complete financial information on over 10,000 financial transactions from 1981 to 2018, allowing us to study the startup investment life cycles and exit outcomes over time. Results indicate that previous successful exits from agricultural technology startups – in the forms of Initial Public Offering (IPO) and Merger & Acquisition (M&A) – lead to higher investments today. Payoffs from prior investments seem to signal the viability of investments in the agricultural sector. But among exit events, prior IPOs appear to have a stronger effect on new investments than prior M&As. Policy implications of VC investments in agricultural technology startups are discussed.

Andrews analyzes the importance of the local environment on the direction and subsequent diffusion of agricultural innovations. By comparing counties that are near and far from land grant colleges using a variety of distance measures, he shows that proximity is more important for agricultural productivity and output than for other measures of innovation in other sectors. To shed light on how widely innovations from land grant colleges diffuse, Andrews exploits data on the histories of new wheat varieties introduced in the U.S. before 1920 and find that only 10-17% of wheat acreage planted in varieties developed since the establishment of land grant colleges is planted in varieties developed at land grant colleges. To present direct evidence that the local environment affects the direction of innovation, he uses data on publications by researchers affiliated with land grant colleges to show that, even more than a century after the land grant colleges were established, land grant research is biased towards crops that were initially most prevalent in land grant college counties, rather than those that were most prevalent in the rest of the state. Finally, Andrews shows that alumni of land grant colleges with agricultural degrees were more likely to live near their alma maters than were alumni with other majors, which he interprets as evidence that agricultural human capital is more location-specific than other forms of human capital.

In this article, Barham, Foltz, and Melo examine the involvement of agricultural and life science faculty at US land grant universities in two types of university-industry relations (academic engagement, academic commercialization) and conventional academic scholarship. It exploits large-scale, random cross-section surveys in 2005 and 2015 to fill a knowledge gap regarding the prevalence, coincidence, intensity, importance and factors shaping faculty involvement in university-industry relations (UIR). Academic engagement, which includes sponsored research, industry collaborations, and presentations, is far more prevalent and important than is academic commercialization, which includes patenting, licensing, and start-ups. Academic engagement generates 15-20 times the research funds that academic commercialization does. Consistent with previous work, UIR activities are higher among faculty with higher academic scholarship activity, so UIR and academic scholarship appear synergistic. While individual, institutional, and university-level factors all help explain faculty UIR activity, econometric analysis highlights differences across basic and applied fields as well as faculty attitudes toward science and commercial activity in shaping the intensity of involvement with the two types of UIR. Significant differences also stem from university fixed effects and may be contingent on history, location, and quality of science, a topic of future inquiry.

Increasing global temperatures and frequent extreme weather events pose new challenges for modern agriculture. However, technology may provide some remedy to the symptom of climate change. Contemporary studies seeking to measure the agricultural sector's adaptive responses to a changing climate are often unable to observe the adoption of specific technologies. In this paper, Meyers and Rhode study the historic example of hybrid corn seeds and their adoption during a period of great drought and farm distress. This allows them to study how farmers adopt potentially weather mitigating technologies in response to drought. Meyers and Rhode reconstruct hybrid corn adoption data at a more disaggregated geographic level than previously available to researchers from the years 1931 to 1955. The researchers match these data with information on drought conditions to test whether drought exposure hastened or hindered the adoption of hybrids. Their findings suggest that drought accelerated the adoption of hybrid seeds, but that this accelerating effect occurred several years after the initial shock.

Agricultural productivity has increased tremendously over the last century, largely due to waves of technological innovations credited to past investment in agricultural research and development (R&D) activities. This paper investigates the extent to which knowledge spillovers from outside agriculture may contribute to agricultural R&D. Clancy, Moschini, and Heisey develop metrics of US agricultural R&D output based on US patents granted over the period 1976-2016. To measure knowledge flows, we rely on three main proxies: patent citations to other patent, patent citations to the scientific literature, and novel items appearing in patents’ text. The originating domain of knowledge flows is alternatively characterized in terms of patent technology classes, assignee type, and subject areas of scientific citations. By tracking citations to other patents, to journal articles, and by performing a novel text analysis to identify and track new ideas, they present evidence that non-agricultural knowledge may be as important to agricultural R&D output as agricultural R&D.