Investment in human capital and research increases productivity in agriculture

Study estimates that public money invested in agriculture through higher education, research and extension in São Paulo State, Brazil, yields a tenfold return to the state's economy.

By Elton Alisson  |  Agência FAPESP – Every real (BRL) of public money invested in agriculture through research, higher education and knowledge transfer via rural extension in São Paulo State, Brazil, yields a return of BRL 10-12 to the state’s economy in terms of sales growth, or contributes BRL 5 to the gross domestic product of São Paulo’s agricultural sector, according to the research project “FAPESP’s contribution to the development of agriculture in São Paulo State”, supported by the foundation.

“Public investment in education and agricultural research and extension must be one of São Paulo State’s priorities in light of the high return to the economy and the significant contribution to GDP,” said Paulo Fernando Cidade de Araújo, a professor at the University of São Paulo’s Luiz de Queiroz College of Agriculture (ESALQ-USP) and principal investigator for the study.

“São Paulo State’s agribusiness GDP, including agriculture, production of feedstocks and inputs, agroindustry and services, reached BRL 213 billion in 2013, or 15% of the state’s total GDP,” Araújo told Agência FAPESP. “The sector accounted for 17% of the formal jobs created that year.”

During the past three years, Araújo has led a comprehensive study of the state’s agribusiness sector in the period 1970-2014, in collaboration with colleagues at ESALQ, the University of São Paulo’s Ribeirão Preto School of Economics, Administration & Accounting (FEARP-USP), the São Paulo State Department of Agriculture & Supply’s Agricultural Economics Institute (IEA), the Federal University of Santa Catarina (UFSC), West Paraná State University (UNIOESTE), the University of Brasília (UnB), and the Institute for Applied Economic Research (IPEA), as well as consultants MB Associados and MB Agro.

The study analyzed agriculture’s contribution to economic development in the state, the economic transformations that accompanied growth of the sector in the period, and technical efficiency in sugarcane production, among other items.

They also estimated the economic return on public investment in human capital – by FAPESP and other institutions – in the agricultural sector of the state between 1981 and 2013.

To produce these estimates, they first surveyed and analyzed agricultural output and the cost of inputs to measure productivity based on both the volume of inputs consumed and investment in research, higher education and rural extension, among other factors that enabled the sector to produce more with an equivalent amount of resources.

The analysis showed that total factor productivity (TFP) rose 2.62% per year between 1970 and 2014. From 1994 on, the gain in TFP was 3.18% per year. TFP measures growth in output that is not explained by the amount of inputs used in production.

“Using the same amount of inputs as in previous years, the agricultural sector in São Paulo State produced much more thanks to a combination of factors, including public investment in higher education, research and extension,” Araújo said.

Contribution

The researchers then set out to estimate the specific contribution of public investment in education, research and extension to these productivity gains.

First, they found that public investment in agricultural research by FAPESP, the São Paulo State Agribusiness Technology Agency (APTA) and the Brazilian Agricultural Research Corporation (EMBRAPA), among others, averaged BRL 417.81 million per year in the period 1981-2013.

Public investment in higher education institutions such as USP, the University of Campinas (UNICAMP) and São Paulo State University (UNESP) averaged BRL 415.36 million per year in the same period.

Investment in rural extension by public-sector institutions such as the São Paulo State Office of Technical Assistance (CATI) averaged BRL 302.1 million per year.

The researchers fed these figures into statistical models to estimate the effect of investment in human capital on TFP for the state’s agricultural sector and the economic return from every additional BRL invested in the sector for this purpose.

They found that a 10% increase in investment in education, research and extension produced a 4.8% rise in TFP and that every BRL invested in human capital increased agricultural GDP by BRL 12 four years later.

“The economic return on public investment in human capital for São Paulo’s agricultural sector is about the same size as in countries like the United States, where in the past every dollar invested in agriculture drove a rise in sales equivalent to 13 dollars,” Araújo said.

Complementary systems

In the study, the researchers stress that São Paulo’s installed capacity in both higher education and in research and extension is of high quality and diversified and that the interconnections among these three systems are strongly beneficial for the agricultural sector in the state.

Public higher education institutions (HEIs) such as USP, UNICAMP, UNESP, and the Federal University of São Carlos (UFSCar) train good professionals and invest consistently in agricultural research and development.

Furthermore, the researchers note, private HEIs are expanding rapidly and training professionals in agrarian sciences and related disciplines.

“Private HEIs in São Paulo currently offer 51 undergraduate degree courses in agrarian sciences, and 1,646 professionals have graduated from these institutions in veterinary medicine and agronomy in recent years, but they invest relatively little in research,” Araújo said. “Some have started doing research with the support of funding agencies such as FAPESP.”

FAPESP invested BRL 3.4 billion in research in agrarian science and related fields between 1981 and 2013.

The topics most researched in projects supported by FAPESP in 1981-2013 included dairy and beef cattle as well as sugarcane, respectively accounting for 12.8% and 4.9% of the agency’s total investment in agrarian science and related fields during the period.

“FAPESP’s investment in agricultural research is of paramount importance to the sector,” Araújo said.