The role of energy productivity in U.S. agriculture

Abstract

This paper investigates the role of energy on U.S. agricultural productivity using panel data at the state level for the period 1960-2004. We first provide a historical account of energy use in U.S. agriculture. To do this we rely on the Bennet cost indicator to study how the price and volume components of energy costs have developed over time. We then proceed to analyze the contribution of energy to productivity in U.S. agriculture employing the IntroductionThe purpose of this study is to investigate the role that energy plays in the U.S.agricultural sector, both in terms of its role as a factor of production and its role as a contributor to productivity growth. Our analysis employs a unique data series compiled by the U.S. Department of Agriculture's Economic Research Service (ERS).The data consist of a state-by-year panel, which will allow us to assess the impact of technological advances over the study period as well as the effect of volatile energy prices. Of particular interest are the effects of major energy market shocks (e.g. the oil price shocks of the 1970s) on energy productivity and the profitability of the U.S.agriculture. The data set includes three outputs and six inputs; the latter include direct energy use in agriculture as well as indirect energy use as, for example, consumption of agricultural chemicals. 1 Both price and quantity data are available. A more detailed description of the data set is given in Section 3 below.Our first objective is to give an historical accounting of energy consumption in U.S.agriculture. While direct energy consumption in the agricultural sector represents only a very small fraction of the total U.S. energy use, changes in the energy market can have a large impact on costs and, therefore, on profitability of the sector as well as on food prices. 2 The effects of energy costs on profitability may also be greatly exacerbated by changes in fertilizer and pesticide costs, both of which are significant energy users. Here we rely on a Bennet (1920) indicator decomposition of profit into price and volume indicators, which can also be decomposed into changes over time and space. This decomposition is possible due to the additive structure of the Bennet indicator. This is not possible with the more familiar Fisher and Törnqvist indexes.Thus our work will provide an additional tool for the analysis of the role of energy in agriculture.1 Energy inputs feature in every stage of agricultural production, from making and applying chemicals to fueling farm machinery used in tillage and harvesting of crops, and to electricity for livestock housing facilities. Such reliance on energy consumption has left farmers vulnerable to high energy costs and volatile energy market fluctuations, thereby highlighting the importance of efficient use of energy for farm profitability and for more sustainable agricultural practices (see Levine, 2012). 2 For example, Wang and McPhail (2012) report that in addition to global food demand, energy shocks also play an important role in explaini...

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